Underlying Option Security


DEFINITION of 'Underlying Option Security'

An underlying option security is the financial instrument on which a derivative's (i.e., an option's) value is based – it provides the price that is used to determine the value of the derivative. An option is classified as a derivative because its value is derived from the underlying security.

BREAKING DOWN 'Underlying Option Security'

An option holder has the right, but not the obligation, to buy or sell a particular instrument at a specified price and date in the future.

  1. Derivative

    A security with a price that is dependent upon or derived from ...
  2. Underlying Asset

    A term used in derivatives trading, such as with options. A derivative ...
  3. Underlying Security

    The security on which a derivative derives its value. For example, ...
  4. Delta

    The ratio comparing the change in the price of the underlying ...
  5. Strike Price

    The price at which a specific derivative contract can be exercised. ...
  6. Risk

    The chance that an investment's actual return will be different ...
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