Put Option

Put option

This security gives investors the right to sell (or put) a fixed number of shares at a fixed price within a given period. An investor, for example, might wish to have the right to sell shares of a stock at a certain price by a certain time in order to protect, or hedge, an existing investment.

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put option

See put.

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Put Option

An option contract in which the holder has the right but not the obligation to sell some underlying asset at an agreed-upon price on or before the expiration date of the contract, regardless of the prevailing market price of the underlying asset. One buys a put option if one believes the price for the underlying asset will fall by the end of the contract. If the price does fall, the holder may buy and resell the underlying asset for a profit. If the price does not fall, the option expires and the holder's loss is limited to the price of buying the contract. Put options may be used on their own or in conjunction with call options to create an option spread in order to hedge risk.

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Put option. Buying a put option gives you the right to sell the specific financial instrument underlying the option at a specific price, called the exercise or strike price, to the writer, or seller, of the option before the option expires.

You pay the seller a premium for the option, and if you exercise your right to sell, the seller must buy.

Selling a put option means you collect a premium at the time of sale. But you must buy the option's underlying instrument if the option buyer exercises the option and you are assigned to meet the contract's terms.

Not surprisingly, buyers and sellers have different goals. Buyers hope that the price of the underlying instrument drops so they can sell at the exercise price, which is higher than the market price. This way, they could offset the price of the premium, and hopefully make a profit as well.

Sellers, on the other hand, hope that the price stays the same or increases, so they can keep the premium they've collected and not have to lay out money to buy.

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Put Option

What Does Put Option mean?

An option contract that gives the owner the right, but not the obligation, to sell (put) a specified amount of an underlying security at a specified price within a specified period. This is the opposite of a call option, which gives the holder the right to buy shares.

Investopedia explains Put Option

A put becomes more valuable as the price of the underlying stock depreciates below the option's strike price. For example, if an investor has one Mar 08 Taser 10 put, he or she has the right to sell 100 shares of Taser at $10 until March 2008 (usually the third Friday of the month). If shares of Taser fall to $5 and the investor exercises the option, he or she can purchase 100 shares of Taser for $5 in the market and sell the shares to the option's writer for $10 each; this means the investor makes $500 (100 × ($10 - $5)) on the put option. Note that in determining the profit, one must consider commissions and the actual cost of buying the put in the first place.

Related Terms:
• Call Option
• Option
• Put-Call Ratio
• Short (or Short Position)
• Stock Option