Option underlying asset
Read More Definition of 'Underlying Asset' Definition: An underlying asset is the security on which a derivative contract is based upon.
The price of the derivative may be directly correlated e. An underlying asset can be a stock, commodity, index, currency or even another derivative E.
Some exotic derivatives, like weather derivatives, may even have a non-financial entity as their underlying asset. Description: Most of the times the underlying asset trades in a spot market especially when the underlying is a financial assetwhere there needs to be a full upfront payment to acquire the asset or within a period of days.
Option underlying asset based on such assets usually do not require a per cent upfront payment to take exposure to them, thereby incorporating an inherent element of leverage in them. Most of the listed stocks that trade on the stock exchanges are underlying asset of the various futures and options contracts based upon them. Consider a stock, say ITC, which trades on the Indian stock exchanges.
Futures a. Options a.