Underlying assets of options
Content
The strike price may be set by reference to the spot price market price of the underlying security or commodity on the day an option is taken out, or it may be fixed at a discount or at a premium.
From now on, we will take equity options options on stocks as examples for learning how to trade options because they are the simplest options. Regardless of the underlying asset, however, the mechanism of options is the same.
A derivative is a financial instrument with a price that is based on a different asset. The Basics of Underlying Asset Underlying assets give derivatives their value.
I see. By the way, tell me a little about options markets in the world.
Options are traded around the world, but the U. How can I trade them? Now people can trade the options in America underlying assets of options all around the world. The internet has enabled us to online-trade options wherever we are.
Some brokers provide a trading environment for mobile devices like iPhone, BlackBerry, etc. Viva la IT revolution!! Why is an option categorized as a "derivative"?
When you trade options, you don't trade actual assets but you simply trade "rights" to buy or sell something. So options "derive" from certain things. Speaking of derivatives, I remember those hideous things that caused "Lehman Shock" in Options must be some sort of lousy stuff if they are in the same category!
Figures trading derivative products mixed with sub-prime loans were indeed lousy, but they are just extreme examples of derivatives that completely neglect risks. You should know that many financial derivatives are traded by individual traders in today's market.
- Underlying Asset Underlying Asset Meaning The underlying asset is defined as the asset on which the financial instruments such as derivatives are based and the value of the underlying asset is indirectly or directly related to the contracts of the derivatives.
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- 3. Underlying Asset Definition
- Read More Definition of 'Underlying Asset' Definition: An underlying asset is the security on which a derivative contract is based upon.
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I didn't know derivatives were popular today. All you need is just an idea, and you can make as many derivatives as you want.
The result is that there are literally all kinds of derivatives in the world. Some of them are very risky while others are easy to trade with relatively small risks.
So options aren't special, are they? Now that you understand what options are, let's learn how to trade them.
In the next two lessons, we will learn Call and Underlying assets of options, the first step of trading options.
