Underlying

What Does It Mean?
What Does Underlying Mean?
1. In derivatives, the security that must be delivered when a derivative contract, such as a put or call option, is exercised.

2. In equities, the common stock that must be delivered when a warrant is exercised, or when a convertible bond or convertible preferred share is converted to common stock.
Investopedia Says
Investopedia explains Underlying
The price of the underlying is the main factor that determines prices of derivative securities, warrants and convertibles. Thus, a change in an underlying results in a simultaneous change in the price of the derivative asset that is linked to it. In most cases, the underlying is a security such as a stock (in the case of options) or a commodity (in the case of futures).
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