Examples
For example, in a stock option to buy 100 shares of Nokia at EUR 50 in April 2011, the underlying is a Nokia share. In a futures contract to buy EUR 10 million 10 year German Government Bonds, the underlying are the German Government bonds. Other examples are stock market indexes such as the Dow Jones Industrial Average and Nikkei 225, for which the underlying are the common stocks of 30 large U.S. companies and 225 Japanese companies, respectively.
Options on futures derivatives are an example of derivatives whose underlying is also a derivative. For example, Euro-Bund options (OGBL) are trade on Eurex and their underlying is the Euro-Bund futures contract (FGBL).
Read more about this topic: Underlying
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