Underlying Option Security

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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.

INVESTOPEDIA EXPLAINS '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.

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  3. What risks should I consider taking a short put position?

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  4. What happens if a software glitch fails to execute the strike price I set?

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  5. In what market situations might a short put be a profitable trade?

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  6. What is the relationship between implied volatility and the volatility skew?

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