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 ?
ETFs serve a stake in an underlying commodity, they provide investments into a fund that holds the assets it tracks, like stocks, bonds or gold.
"FulCloud platform offers an architected solution (design, build, migrate and operate) using underlying Commodity hardware, network and storage that provides guarantee of highest recovery and availability.
"The upward pressure on prices from the fall in the pound is weakening, leaving underlying commodity prices and strong competition for customers the key influences on inflation."
Regardless of legal structure, pipeline providers in general are toll-takers, which makes them less exposed to the full volatility of the underlying commodity price -- yet many have a meaningful proportion of their revenue with automatic escalators linked to inflation.
"That price seems divorced from the value of any underlying commodity--in fact, there is no underlying commodity."
For instance, derivatives that are based on a particular commodity are generally settled by the payment by one party to the other and not by the physical delivery of the actual underlying commodity.
Those suppliers can be susceptible to very large credit exposures in the event that the underlying commodity's price falls below the contract's original fixed price.
It is important to realize that the goal of these funds is to reflect the performance of the underlying commodity, minus any expenses associated with operating the fund.
Larger orders from a broad range of customer industries contributed to this record quarterly order intake, giving evidence of GEAs resilience against adverse underlying commodity prices as for example a still depressed milk price impacting the overall investment mood in particular industries.
ETF tracking errors and technical factors like futures contract rollovers can also affect returns relative to the underlying commodity. "Sometimes you can be dead right on the direction of the commodity but the ETF doesn't really follow through as far as your profits and losses," says Garner.
According to the company, the decrease in revenue was principally attributable to the reduced purchasing from companies in the oil and gas industry stemming from budget constraints derived from a drastic decline in the underlying commodity prices year over year.
Commodities are the actual raw materials while 'commodities derivatives' are financial contracts derived from the value of the underlying commodity..." Abdalhamid Evans, Founder, Halalfocus.