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 ?
As an option contract is derived from a stock (or index), all factors affecting the value of its underlying stock (or index) influence its value.
A high Put/Call ratio suggests that the investor sentiment is bearish and that investors expect the underlying stock to decrease in value.
Generally, if the RSI rises above 30 it is considered bullish for the underlying stock.
Secondly, this study aims to provide warrant issuers an insight regarding the behaviour of underlying stock price, systematic risk and trading volume surrounding the event dates of warrant issues.
1361, which states that generally call options, warrants, or similar instruments (collectively, "call options") are treated as a second class of stock if the call options are substantially certain to be exercised and have a strike price substantially below the FMV of the underlying stock on the date that the call options are issued or transferred by an eligible shareholder to a person who is not an eligible shareholder.
ALL MODELS RELY ON A NUMBER OF ESTIMATED items--including the exercise price of the option, its term, the current market price of each share of underlying stock, expected volatility and dividends and the risk-free interest rate--that can greatly influence the fair value of share-based compensation.
EDT, on June 30, 2004 and will affect all shares of common stock, including those shares underlying stock options and warrants, outstanding immediately prior to the effective time of the reverse stock split.
particularly with regard to predictions about the volatility of companies' stock prices, the legislation requires that the assumed volatility of the underlying stock option shall be considered zero.
If the sponsor's share price rises, options behave more like the underlying stock, rising and falling in value in tandem with the shares, prompting managers to become more risk averse and more desirous to preserve an embedded option gain.
On the other hand, selling an option when you don't own the underlying stock exposes you to potentially steep losses.
One of the key challenges in valuing such options is estimation of the underlying stock price volatility, especially for private companies whose stock does not trade on the open market.
Includes stock rights in which a corporation either reported (or reasonably expects to report) a financial expense due to the issuance of a stock right with an exercise price lower than the fair market value of the underlying stock at the grant date that was not timely reported on financial statements or reports for the period.