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.

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