In around two minutes you will know what is an Underlying Asset. You will get both professional definition and easy explanation. No intro, no outro, straight to the point.

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Underlying Asset is an asset upon which the value of a derivative is based.

And if you are not sure what derivative means, feel free to watch one of my previous videos.

Most common derivatives on the stock market are options. I also have videos about both put and call options if you are not sure what they mean either.

But long story short, a call option reserves the right to buy shares of a company at a specified price. Let’s say, at this moment shares of Company A are priced at $100. If you buy a call option with the strike price of $105, you will be able to buy shares of Company A at $105 each, even if the price goes way above that.

Call option is the derivative in this case. And shares of Company A are underlying asset for this particular derivative. And based on how the price of these shares behaves, the value of options will change.

Besides stocks, underlying assets can also be commodities, currencies, futures, and indexes.

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*None of this is meant to be construed as investment advice, it's for entertainment purposes only. Links above include affiliate commission or referrals. I'm part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.

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