Seller's Option


DEFINITION of 'Seller's Option'

The right of a forward contract seller to choose some of the specifications of a commodity to be delivered. The choices about the delivered commodity's quality and delivery specifications must fit among the limits imposed by the terms of the contract.

Seller's option can also refer to a put option.

BREAKING DOWN 'Seller's Option'

For some commodities, such as rice and oil, collecting suitable amounts of a commodity and providing the transportation can be a very complicated process. For example, a contract for corn can represent 5,000 bushels. Since hedgers tend to buy large numbers of contracts at a given time, a forward contract seller might have to deliver hundreds of thousands of corn bushels during one delivery. Giving contract sellers a little bit of leeway can alleviate some of the difficulties involved with delivery logistics.

  1. Forward Contract

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  2. Commodity

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  3. Delivery Date

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  4. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  5. Underlying

    1. In derivatives, the security that must be delivered when a ...
  6. Delivery

    The action by which an underlying commodity, security, cash value, ...
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