Reference security: Security
X is a reference security for another security, Y, if Y may be converted into, exchanged for, or
exercised to purchase or sell
X, or if
X in whole or part determines the
value of Y. For example, if a convertible bond is convertible into common stock, the common stock would be a reference security for the bond, but the bond would not be a reference security for the stock.
To
exercise his options and purchase shares
of ABC, the seller
of the 10 contracts is obligated to redeem 1,000 shares (10 purchase options
x 100)
of ABC at $ 25, even if their market
value is now up to $ 30.