put

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Put

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

put

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

put

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 ?
Putting off a major purchase or buying a car are the main actions people in all groups have taken to try to make ends meet.
Hayami, however, told a House of Representatives committee on financial-system matters, ''It is not appropriate to hold, from now on, deliberations on putting off the imposition of the refund limit.''
I tried to deal with my anxiety by putting off the phone call.
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"I have been putting off a knee operation for two years,'' he said yesterday.
Teachers' salaries and perceived lack of career options are also putting off students, according to Pratibha Hare, from the University of Derby.
Lack of time is the top excuse given for putting off essential home maintenance, used by over 30 per cent of people.
Psychologist Donna Dawson, who was involved in the research, said, "Hundreds of thousands of people are risking their health by putting off important appointments with their doctor." Roger Thomas of Healthnow said, "Although it is difficult, people need to put themselves first and face up to health problems."
The percentages putting off treatment for a serious or non-serious condition have nearly doubled since 2001.
Leading construction firm George Wimpey Bristol has outlawed it for fear of putting off "savvy and sophisticated" homebuyers visiting sites.
Now Margetson faces putting off surgery again in a bid to realise his dream of winning a Welsh cap.
Jeanette Haslam, a clinical specialist and lecturer at East London University, said: ``Many people do not realise that they are already suffering from the effects of putting off a trip to the loo.