Underlying Option Security

The underlying option security is the security that is the subject of the option contract. For example, if you buy a call option on XYZ stock, the underlying security is XYZ stock. The underlying security can be a stock, a bond, a commodity, or a financial index.

The price of the option is based on the price of the underlying security. If the price of the underlying security goes up, the price of the option will go up. If the price of the underlying security goes down, the price of the option will go down.

The underlying security can be cash-settled or physically settled. In a cash-settled option, the buyer of the option receives the difference between the strike price and the market price of the underlying security at expiration. In a physically settled option, the buyer of the option receives the underlying security at expiration.

Options are a complex financial instrument and it is important to understand the risks involved before trading them. If you are not familiar with options, you should consult with a financial advisor before trading them.