Option contracts which are written not on derivative instruments and equity assets such as futures, stocks, or indexes, but otherwise on financial and tangible assets such as bonds, currencies, and commodities, and sometimes gold and electricity.

For example, interest rate options on physicals may be written on fixed-income instruments, but not on interest rate futures contracts. Likewise, currency options may be written on dollar, euro, or yen, but not on futures contracts on these currencies.

The term “options on physicals” is the practical opposite of the term “options on futures and forwards”.