Basket Option or Warrant

(1) A third party option or covered warrant on a basket of underlying stocks chosen because they represent an industry, economic sector, or other group designed to appeal to option or warrant buyers. Some of these basket contracts are settled by physical delivery and some are settled for cash. (2) A kind of average return or average change option on any group of interest rates, exchange rates or indexes. The appeal of all basket options is that imperfect correlations between the items in the basket often make the basket option premium lower than premiums on separate options on each item.

Glossary * B