put option

Also found in: Dictionary, Thesaurus, Legal, Encyclopedia, Wikipedia.

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.

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.

put option

See put.

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.

put option


put option

References in periodicals archive ?
The basic tool of PI is a put option on stock market indexes, such as Standard & Poor's, the New York Stock Exchange and Major Market indexes.
They also included the put option to sell their 15.12 percent stake to Shin if it were to not go public by 2015.
Retail investors tend to purchase call options over put options by a ratio of 2:1.
"If you've been shorting WTI while at the same time going long put options, you'll have made a lot of money in the last few weeks.
Then a three-dimensional nonlinear mathematical pricing model for lookback put option value with fixed transaction costs will be established.
“Our book de-mystifies the OTM Put Option selling process and encourages investors to become self-directed, so that they can realize substantial APRs with less risk than traditional buy-and-hold strategies,” added Dr.
2 May 2012 - US Bank National Association has been appointed as paying agent for a put option on 3.625% convertible senior notes due 2025 issued by US consumer credit provider CompuCredit Holdings Corporation (NASDAQ:CCRT).
The new accord simply accelerates the expected exit of Sawiris, who had a put option to sell out to France Telecom starting in September 2012.
Because guarantees only kick in during a financial crisis, their effect should be the most visible in the prices of assets that mainly reflect "tail risk", such as put options. (A put option on a particular stock pays an investor the difference between a pre-specific strike price and the price of the stock on the date when the options expire, provided that the stock price is below the strike price.
Neither of these sources provides evidence in support of the contention that put option trading has supplanted short selling as the favored tool of risk-averse bearish investors.
United Continental Holdings Inc (NYSE:UAL), the holding company for United Airlines and Continental Airlines, announced today a put option notification for its 5% senior convertible notes due 2021.
However, the price of a put option rises with the fall in the underlying security's price as the lower the latter's price relative to the strike price on the exercise day, the higher the pay-off.