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An option granting the right to sell the underlying futures contract. Opposite of a call.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved


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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
A similar number (12%) were put off by the time and money they think it takes to get to the countryside - although most people are less than an hour away from rural areas, according to Leaf.
The residents say that the fire could have been put off if the county had firefighting emergencies.
The ministry said it will collect more opinions before making a decision over whether to put off the policy at the end of this month.
Minister of Labor Lin Mei-chu added that the authorities would only agree to put off the mandatory day off in exceptional circumstances.
A two-judge bench, comprising Justices Faisal Arab and Sajjad Ali Shah, put off hearing on the plea due to paucity of time at the SC's Karachi Registry.
-- More than a third of American women (37%) report that they or a member of their family put off medical treatment in the past year because of cost, compared with less than a quarter of U.S.
Such extra expenses can also put off potential cyclists - but worse is the conditioning of young people, curbing their sense of adventure and freedom, making them frightened of danger, instead of just being aware of it.
Zanganeh, who has been in the area to oversee operations to extinguish fire, said thanks to hard efforts of the officials in charge and also the firefighters and thanks to efforts of Bu Ali Sina, Tondguyan, Bandar Imam and others, the fire was successfully put off.
Three people nearly getting off from the vehicle at the eleventh hour while the car put off by fire brigade units.
Millennials are significantly more likely than any of the other generations to put off marriage (18%), put off having kids (24%), put off furthering their education (34%) and to have moved in with parents or relatives (which one in five has done).
Get in touch For the committee to suggest the earlier decision to put off maintenance was "appropriate" because of budget cuts is patently nonsense.
A new statewide survey in Rhode Island finds that the state lacks enough primary care physicians, nearly one-third of residents put off needed care due to cost and about half of assisted living facilities are not accepting new Medicaid patients.