Seller's Option

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Forward Contract

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

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

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

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

    1. The final date by which the underlying commodity for a futures ...
  6. Put Option

    An option contract giving the owner the right, but not the obligation, ...
Related Articles
  1. Options On Futures: A World Of Potential ...
    Options & Futures

    Options On Futures: A World Of Potential ...

  2. The Ins And Outs Of Selling Options
    Options & Futures

    The Ins And Outs Of Selling Options

  3. What is the difference between forward ...
    Investing

    What is the difference between forward ...

  4. Futures Fundamentals
    Insurance

    Futures Fundamentals

comments powered by Disqus
Hot Definitions
  1. 80-10-10 Mortgage

    A mortgage transaction in which a first and second mortgage are simultaneously originated. The first position lien has an ...
  2. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific ...
  3. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  4. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  5. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center