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.

RELATED TERMS
  1. Delivery Price

    The financial value of the conveyance of the underlying commodities ...
  2. Current Delivery

    A type of futures contract that requires the delivery of the ...
  3. Forward Contract

    A customized contract between two parties to buy or sell an asset ...
  4. Contract Month

    The month in which a futures contract expires. The contract can ...
  5. Delivery Date

    1. The final date by which the underlying commodity for a futures ...
  6. Delivery Month

    A key characteristic of a futures contract that designates when ...
Related Articles
  1. Professionals

    Forward Markets and Contracts: Settlement Procedures

    CFA Level 1 - Forward Markets and Contracts: Settlement Procedures. Learn the differences between being long or short in a forward contract. Also contrasts how physical and cash deliveries are ...
  2. Options & Futures

    Why Forward Contracts Are The Foundation Of All Derivatives

    This article expands on the complex structure of derivatives by explaining how an investor can assess interest rate parity and implement covered interest arbitrage by using a currency forward ...
  3. Term

    The Difference Between Forwards and Futures

    Both forward and futures contracts allow investors to buy or sell an asset at a specific time and price.
  4. Investing Basics

    What is a Forward Contract?

    A forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date.
  5. Options & Futures

    How to Trade Futures Contracts

    Futures is short for Futures Contracts, which are contracts between a buyer and seller of an asset who agree to exchange goods and money at a future date, but at a price and quantity determined ...
  6. Professionals

    Offsetting Contracts, Settlements And Delivery

    Offsetting Contracts, Settlements And Delivery
  7. Professionals

    Option Theory

    Option Theory
  8. Insurance

    Futures Fundamentals: How The Market Works

    The futures market is a centralized marketplace for buyers and sellers from around the world who meet and enter into futures contracts. Pricing can be based on an open cry system, or bids and ...
  9. Options & Futures

    All About Liquid Commodities

    You might hear 'liquid commodities' and think of an auction, but they're actually a high-volume, fast paced financial product suitable for day traders.
  10. Professionals

    Terminating a Forward Contract Prior to Expiration

    CFA Level 1 - Terminating a Forward Contract Prior to Expiration. Learn how to terminate your position in a forward contract through use of an offset. Discusses default risk upon terminating ...
RELATED FAQS
  1. How is the price of a derivative determined?

    Learn how different types of derivatives are priced, including how futures contracts are valued and the Black-Scholes option ... Read Answer >>
  2. 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 Answer >>
  3. How do I learn technical skills for trading commodities?

    Learn what resources are available to learn about trading commodities, and understand some of the differences between stocks ... Read Answer >>
  4. What does it mean to take delivery of a derivative contract?

    Find out more about derivative contracts and what it means when the holders of derivative contracts take delivery of the ... Read Answer >>
  5. How do futures contracts roll over?

    Learn about why futures contracts are often rolled over into forward month contracts prior to expiration, and understand ... Read Answer >>
  6. Why is the initial value of a forward contract set to zero?

    Discover why the initial value of a forward contract is set to zero; read about financial mathematics and exchange logic ... Read Answer >>
Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center