Underlying Security
Definition of 'Underlying Security'The security on which a derivative derives its value. For example, a call option on Google stock gives the holder the right, but not the obligation, to purchase Google stock at the price specified in the option contract. In this case, Google stock is the underlying security. |
|
Investopedia explains 'Underlying Security'In derivative terminology, the underlying security is often referred to simply as "the underlying." An underlying security can be any asset, index, financial instrument or even another derivative. Generally, an underlying security's value should be independently observable by both parties, so that there is no potential for confusion regarding the value of the derivative. Investors dealing in derivatives must closely research the underlying security in order to ensure that they fully understand the factors affecting the value of the derivative. |
Related Definitions
Articles Of Interest
-
Pin Down Stock Price With Real Options
How can you assign a value to what a company may do with its business in the future? We explain how it works. -
Are Derivatives Safe For Retail Investors?
These vehicles have gotten a bad rap in the press. Find out whether they deserve it. -
Introduction To Weather Derivatives
Learn about a financial instrument that makes temperature a tradable commodity. -
How Companies Use Derivatives To Hedge Risk
Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices. -
Hedge Funds Hunt For Upside, Regardless Of The Market
Hedge funds seek positive absolute returns, and engage in aggressive strategies to make this happen. -
6 Asset Allocation Strategies That Work
Your portfolio's asset mix is a key factor in whether it's profitable. Find out how to get this delicate balance right. -
American Vs. European Options
These two options have many similar characteristics, but it's the differences that are important. -
Pay Attention To The Proxy Statement
Don't overlook this overview of a company's well-being. -
How Risk Free Is The Risk-Free Rate Of Return?
This rate is rarely questioned - unless the economy falls into disarray. -
An Introduction To Gamma-Delta Neutral Option Spreads
Find the middle ground between conservative and high-risk option strategies.
Free Annual Reports