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

    A customized contract between two parties to buy or sell an asset ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  3. Delivery

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

    1. The final date by which the underlying commodity for a futures ...
  5. Futures Contract

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

    1. In derivatives, the security that must be delivered when a ...
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  1. What is the difference between forward and futures contracts?

    Fundamentally, forward and futures contracts have the same function: both types of contracts allow people to buy or sell ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

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  3. How do hedge funds use equity options?

    With the growth in the size and number of hedge funds over the past decade, the interest in how these funds go about generating ... Read Full Answer >>
  4. 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 >>
  5. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
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