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underwater definition - finance
A call option with a strike price that is higher than the market price of the underlying security or a put option whose strike price is lower than the market price of the underlying security. Until expiration, however, the underwater option still has the time value of money because the price of the underlying instrument can change.

Webster's New World Finance and Investment Dictionary Copyright © 2003 by Wiley Publishing, Inc., Indianapolis, Indiana.
Used by arrangement with John Wiley & Sons, Inc.

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