underlying asset

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Underlying asset

The security or property or loan agreement that an option gives the option holder the right to buy or to sell.

Underlying Asset

In a derivative or warrant, the security, property, or other asset that gives value to the derivative or warrant. For example, in an option giving one the right to buy stock in Johnson and Johnson, the underlying asset is the stock in Johnson and Johnson. An underlying asset may many things, such as a physical commodity, a security, a piece of land, or part of a business.

underlying asset

1. The physical and financial asset to which a security holder or a class of security holders has a claim. An analyst may believe that a stock is underpriced on the basis of the value of the firm's underlying assets and the potential earning power of those assets.
2. The asset that underlies and gives value to a security. The underlying asset of a stock option is the stock that the option can be used to purchase. Likewise, the underlying asset of a convertible bond is the stock for which the bond can be exchanged. The market value of a security is directly affected by changes in the value of any underlying asset into which it may be exchanged.
References in periodicals archive ?
Commodity linked securities can be more volatile and less liquid than the underlying commodities themselves and the use of leverage may accelerate the velocity of potential losses.
Both equities and the underlying commodities rallied as a weaker US
It said that banks' ability to trade in the underlying commodities and not just derivatives was significant, as it ensured the smooth functioning of the markets.
The year started on a high note with most sector stocks enjoying further gains following their pre-Christmas rally and shares generally performing better than the underlying commodities.
5%, analysts are starting to question whether much higher share prices are justified given the prospects of higher costs and an uncertain outlook for the underlying commodities.
The DBLCI Apex Index aims to generate superior results in all economic cycles by investing in a risk-weighted basket of three underlying commodities indices (DBLCI Mean Reversion Enhanced Index, the DB Commodity Harvest Index and the DBLCI Momentum Index.
With so many of the key underlying commodities experiencing price inflation, manufacturers will be increasingly concerned that they will have to pass those costs down the supply chain to retail customers, and ultimately, consumers.
ETFs are derivative products, which are traded based on price movements in any of the existing indices or underlying commodities.
GMR is a valuable risk-mitigating tool, as it secures financing through the intrinsic value of underlying commodities.
Hitherto, most of the commodity Murabaha deals have been done through brokers in London using contracts on the London Metals Exchange as the underlying commodities.
In addition to being capital-protected, Alternative Energy is a five-year fund giving investors the opportunity to benefit from the high performance of the underlying commodities, with a potential gain of 14pc annually, and without any risk to their initial capital.
Investment under commodities indexes has ballooned from around EUR70 billion at the start of 2006 to EUR235 billion in mid-April, about EUR90 billion of which has come from fresh financial flows with the rest coming from gains in the underlying commodities, according to Lehman Brothers.