DEFINITION of 'Underlying Asset'
A term used in derivatives trading, such as with options. A derivative is a financial instrument whose price is based (derived) from a different asset. The underlying asset is the financial instrument (e.g., stock, futures, commodity, currency, index) on which a derivative's price is based.
INVESTOPEDIA EXPLAINS 'Underlying Asset'
For example, an option on a stock gives the holder the right to buy or sell the stock for a specified amount (strike price) at a certain date in the future (expiration). The underlying asset for the stock option contract is the company's stock.
RELATED TERMS

Underlying Option Security
An underlying option security is the financial instrument on ... 
Delta
The ratio comparing the change in the price of the underlying ... 
Gamma
The rate of change for delta with respect to the underlying asset's ... 
Derivative
A security whose price is dependent upon or derived from one ... 
Expiration Date (Derivatives)
The last day that an options or futures contract is valid. When ... 
Strike Price
The price at which a specific derivative contract can be exercised. ...
RELATED FAQS

Why is the initial value of a forward contract set to zero?
Forward contracts are buy/sell agreements that specify the exchange of a specific asset and on a specific future date but ... Read Full Answer >> 
How do the investment risks differ between options and futures?
Futures and options contracts are commonly used by investors who are interested in leveraging movement within the stock or ... Read Full Answer >> 
Why would a company issue a rights offering?
Companies most commonly issue a rights offering to raise additional capital. A company may need extra capital to meet its ... Read Full Answer >> 
What is the difference between share purchase rights and options?
There is a big difference between share purchase rights and options. With share purchase rights, the holder may or may not ... Read Full Answer >> 
How do I calculate a forward rate in Excel?
You need to have the zerocoupon yield curve information to calculate forward rates, even in Microsoft Excel. Once the spot ... Read Full Answer >> 
What is the difference between an optionadjusted spread and a Zspread in reference ...
Unlike the Zspread calculation, the optionadjusted spread takes into account how the embedded option in a bond can change ... Read Full Answer >>
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