Definition of Underlying Security

Underlying security is a security, contract, or commodity on which an option or futures contract is based. .

Applying "Underlying Security" to Securities Exams:

All derivative securities and contracts have an underlying instrument that is the basis for the value of that derivative security or contract. Options and futures contracts are the most common forms of derivative securities. For an IBM June 150 call option the underlying security is IBM stock. For an S & P 500 futures contract the underling index is the S & P 500.

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