DEFINITION of 'Physical Option'

An option that is based on a physical asset. Physical options give the owner the right to buy or sell physical assets at a predetermined price and date. They are called "physical" because they are based on assets such as currencies, Treasury debts and commodities, rather than stocks, futures and indexes.

BREAKING DOWN 'Physical Option'

As with any other type of option, you can purchase a call or put. You have the right to "call in," or buy, a physical asset by owning a physical call option; you have the right to "put out," or sell, a physical asset by owning a physical put option.

The Chicago Board Options Exchange (CBOE) trades physical options that represent underlying assets such as gold or electricity.

RELATED TERMS
  1. Physical Capital

    Physical capital is one of the three main factors of production ...
  2. Physical Delivery

    Physical delivery is a term in an options or futures contract ...
  3. Actuals

    Actuals are the physical commodity that underlies a futures contract ...
  4. Vanilla Option

    A vanilla option gives the holder the right to buy or sell an ...
  5. Stock Option

    Stock options give the holder the right to buy or sell shares ...
  6. Gold Option

    A gold option gives an investor the right, but not the obligation, ...
Related Articles
  1. Trading

    Understanding Taxes on Physical Gold/Silver Investments

    Physical gold and silver holdings are taxed when sold-- here's how the cost basis is calculated, and ways you can offset taxes owed.
  2. Trading

    Trading Options on Futures Contracts

    Futures contracts are available for all sorts of financial products, from equity indexes to precious metals. Trading options based on futures means buying call or put options based on the direction ...
  3. Trading

    Beginners Guide To Options Strategies

    Find out four simple ways to profit from call and put options strategies.
  4. Trading

    How to Sell Put Options to Benefit in Any Market

    The sale of a put allows market players to potentially own the underlying security at a future date, at a price below the current market price.
  5. Investing

    Gold Put Options Hedge Against Volatility

    People are often encouraged to own gold as a hedge against inflation or to diversify their investments. One way to mitigate the volatility of owning gold is to use put options as part of your ...
  6. Investing

    Why Investing in Commodities Can Be Tricky

    While some exposure to commodities can enhance a portfolio, it is key to understand the investment vehicle you've chosen, or you could be in for a rude awakening.
  7. Trading

    Futures and Options: How Are They Different?

    Options and futures may sound similar, but they are very different. Futures markets are a bit simpler to understand but carry a greater risk for investors.
  8. Investing

    Top 3 ETFs With Exposure to Palladium (PALL, SPPP)

    Discover why palladium is considered a precious metal, and learn about some of the ETF options that provide investors exposure to palladium.
RELATED FAQS
  1. What are the most common ETFs that track the metals and mining sector?

    Discover investment opportunities with ETFs that invest in physical precious and base metals and miners such as gold, silver, ... Read Answer >>
  2. How Do Speculators Profit From Options?

    Options are a risky game, but you can learn speculators' tricks to use them to your advantage. Read Answer >>
  3. What is the difference between trading currency futures and spot FX?

    The main difference between currency futures and spot FX is when the physical exchange of the currency pair takes place. Read Answer >>
Trading Center