Price-Based Option


DEFINITION of 'Price-Based Option'

A derivative financial instrument in which the underlying asset is a debt security. Typically, these options give their holders the right to purchase or sell an underlying debt security (usually a bond) or to receive cash payment based on the current value of the underlying debt security.

BREAKING DOWN 'Price-Based Option'

This unique type of option has been traded in the past, but it is rarely traded in modern financial markets. The yield-based option is a more commonly-traded relative of the priced-based option.

  1. Derivative

    A security with a price that is dependent upon or derived from ...
  2. Bond

    A debt investment in which an investor loans money to an entity ...
  3. Underlying

    1. In derivatives, the security that must be delivered when a ...
  4. Bond Option

    An option contract in which the underlying asset is a bond. Other ...
  5. Option

    A financial derivative that represents a contract sold by one ...
  6. Yield-Based Option

    A type of debt-instrument-based option that derives its value ...
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  1. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  2. Are high yield bonds a good investment?

    Bonds are rated according to their risk of default by independent credit rating agencies such as Moody's, Standard & ... Read Full Answer >>
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    The maximum Social Security disability benefit amount for a single eligible person in 2015 is $1,165 per month, but you can ... Read Full Answer >>
  4. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  5. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
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    In finance, a convertible bond represents a hybrid security that offers debt and equity features and risks. While a convertible ... Read Full Answer >>

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