Underlying

What does it mean?
1. In derivatives, the security that must be delivered if the contract is exercised.

2. In equities, the common stock that underlies certain types of securities such as warrants and convertible bonds.

In Other Words...
The price of the underlying is a main factor in determining the price of a derivative security. 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).

Related Links
Options Basics Tutorial - An introduction to the world of options, covering everything from primary concepts to how options work and why you might use them.

Related Terms
Call Option | Derivative | In the Money | Option | Put Option | Strike Price

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