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An option granting the right to sell the underlying futures contract. Opposite of a call.

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.


1. An option that conveys to its holder the right, but not the obligation, to sell a specific asset at a predetermined price until a certain date. In most cases, puts have 100 shares of stock as the underlying asset. For example, an investor may purchase a put option on GenCorp common stock that confers the right to sell 100 shares at $15 per share until September 21. Puts are sold for a fee by other investors who incur an obligation to purchase the asset if the option holder decides to sell. Investors purchase puts in order to take advantage of a decline in the price of the asset. Also called put option. Compare call. See also guarantee letter, synthetic put, transferable put right.
2. Sale of an issue of bonds before maturity by forcing the issuer to buy at par. Few bond issues permit the holder this option.
Putting things into perspective: How to hedge, using puts. How to speculate, using puts.

A put option has an inverse relationship to the underlying security. As the value of the stock increases, the value of the put decreases. Like calls, puts can be used for both hedging and speculation. Puts can be purchased in conjunction with stock ownership as a form of insurance (that is, a hedge) against downside loss on a stock. If the stock price declines, the put holder can either sell the put and keep the stock, or exercise the put and sell the stock at the put's strike price. In either case, the increased value of the option will offset the stock loss to some degree. If the stock price rises beyond a certain level, the put will expire worthless. In this case, the put holder will lose the premium paid for the option but will still participate in the upward stock movement. The break-even point occurs when the stock price advances beyond the put's strike price plus the premium. Puts also can be used speculatively without a position in the underlying security. Instead of selling a stock short, an investor who anticipates a decline in the price of a stock can buy an at-the-money put. If the stock price rises, causing the put to expire worthless, the maximum loss is the premium paid for the put. But if the stock price declines substantially, the investor could make profits that far exceed the initial cost of the put.

Henry Nothnagel, Senior Vice President—Options, Wachovia Securities, Inc., Chicago, IL


To force the seller of a put option to purchase shares of stock at the stipulated price. Puts are exercised by the owner only when the market price of the underlying stock is less than the strike price. Also called put to seller.
References in periodicals archive ?
Cricket Australia, meanwhile, have put back the start of the first Test against South Africa by five days to December 17.
A colleague of mine in Umm Suqueim found two or three baby house sparrows that had fallen out of the nests at his villa which he put back but they kept coming out weren't so lucky," said Milner.
He said he believed the council had put back the decision to avoid a possible backlash at the polls if the school was closed, adding: "The council is just trying to get the local elections out of the way before they make their decision.
In 2002, an additional nine million s/f were put back.
A magnificent image of a Bodhisattva, that had survived the Civil War and which the museum put back on show in 2000, fell victim to the Taliban hardening in attitude and now stands as a shattered hulk -- smashed in 2001.
The court's ruling will ensure that New England's beleaguered groundfish are put back on track towards sustainability.
Congress needs to put back some of the cut funds to prevent "an acute care crisis.
They are designed such that if a surgeon tries a prosthesis and finds he has the wrong length, it can be cleaned, put back into the kit and resterilized with steam or ETO.
This time I am pleased to announce that the canned music has been put back in the can, and a group of musicians called the New York Metamorphoses Orchestra has been put in City Center's pit.
Recycling is good, but not when the trash gets put back into communities of color," says Loyal "When you recycle, you need to know where that trash is going.
The low-cholesterol fraction is then put back into the milk, which can be used in such products as butter, ice cream, cheese and yogurt.