The term underlying asset refers to a commodity, financial instrument, or security specified in a derivative contract. The underlying asset is the primary driver of the price paid for a derivative.
Also referred to as the underlying security, the underlying asset is the object that is being sold or purchased via an option contract or derivative. For example, the underlying asset in a contract can be a common stock, a commodity such as corn, a currency, or even a market index.
An option provides the holder with the right, but not the obligation, to buy or sell the underlying asset on or before the contract's expiration date at the option's strike price. While the price paid for a derivative is a function of time, the primary driver of the price paid or received when buying or selling an option is the value of the underlying asset. This is the reason options are referred to as derivatives; they derive their value from the value of the underlying asset.
An investor is interested in purchasing a call option for Company ABC's common stock. A call option gives the holder the right to buy Company ABC's common stock at the option's strike price. If the investor were to purchase a call with a strike price of $50.00, and the current market price of Company ABC's common stock were $60.00, they would pay at least $10.00 per share for this call option.
transaction cost, trading pit, tick size, adjusted futures price
Explore Investing Further
Trading has never been easier, thanks to the rise of online platforms that enable you to buy and sell various assets at the click of a button. But with so many options available, it can be challenging to decide which platform is right for you.
Looking for a way to avoid swap fees while trading forex?
Below listed are the small reviews of the top 10 ETF brokers available across the United States.
Our top beginner's pick for copy trading is eToro. Read on for more details, plus seven good alternatives.
Swing trading stocks can be a great way for investors to take advantage of short-term stock market movements and gain significant returns. If you're interested in swing trading, the key to success lies in selecting the right stocks to buy and sell quickly for a profit.
The table below lists the best stock picks under $2, listed on public exchanges.
The table below lists the best stock picks under $1, listed both on public and OTC exchanges.
This section will highlight the best EV-trading penny stocks available in the United States.
The demand for sustainable energy has grown rapidly in recent years. This has resulted in increased scrutiny of the automotive market. As a result, the electric vehicle (EV) industry has made significant advancements.
Intelligent Bio Solutions Inc. is a life sciences company, founded in 2016 with headquarters in New York and is engaged in performing diagnostic tests, real-time monitoring, and non-invasive surgery for its patients. The firm has developed a CoV-2 Biosensor, which can be used in RNA virus detection.
Hour Loop was founded in 2013 with headquarters in Redmond, Washington. It’s an online retailer involved in e-commerce in the United States that hit the public markets on Jan 7th of 2022. The company sells home/garden decor, electronic products, kitchenware, and apparel through walmart.com, amazon.com, and hourloop.com.
.jpg)
