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In finance, the term “underlying” generally refers to the asset or security that underlies a financial instrument such as a derivative or an option. For example, in the case of a stock option, the underlying asset would be the stock that the option gives the holder the right to buy or sell. In the case of a commodity futures contract, the underlying asset would be the commodity (such as gold or crude oil) that the contract is based on. The price of the derivative or option is typically tied to the price of the underlying asset.

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