Put option

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The Economic Times  Aug 24  Comment 
Foreign investors, considered to be the movers of the market, managed to offset some of their share losses by having purchased the very bets that HNIs and pro desks sold.
Motley Fool  Jun 20  Comment 
Be sure you know about this way of betting against a stock or the market.
The Economic Times  Apr 28  Comment 
It was a period when implied volatility (IV) – or, traders’ perception of risk – rose 28.2% to 18.74. IVs rise when a market falls.
The Economic Times  Dec 24  Comment 
Market failed to hold the initial gains and declined more than 100 points from day's high to finally settle at 8271.55, down 0.75% or 62.65 points.
Forbes  Sep 25  Comment 
Investors in Companhia Brasileira de Distribuicao (NYSE: CBD) saw new options begin trading this week, for the November 22nd expiration. At Stock Options Channel, our YieldBoost formula has looked up and down the CBD options chain for the new...
The Economic Times  Jun 5  Comment 
This market may have changed the direction structurally, but there are some short-term data points which suggest that it may not be unidirectional, he said.
Cloud Computing  Apr 30  Comment 
Alteva, Inc. ("Alteva" or the "Company") (NYSE MKT: ALTV), a premier provider of hosted Unified Communications-as-a-Service (UCaaS), announced today that, in accordance with its previously announced plans, the Company has exercised the put option...




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A put option is a financial instrument that conveys the buyer the right, but not the obligation, to sell a specified quantity of a security at a set strike price on or before an agreed upon expiration date. In this sense, a put option is very similar to a put warrant. Timing of exercising the option depends on whether it is an American option or European option. If the option buyer decides to exercise the put option, the counterparty who sold, or wrote the option, must buy the underlying security at the agreed upon strike price, even if the market price for that security has fallen below the strike price.

In other words, when you buy a put option, you are buying the right to sell your stock at the strike price regardless of the stock price in the future before expiration. For example, if a stock you are holding is trading at $50 right now and you buy a put option with a $50 strike price, you have the right to sell that stock for $50 no matter how low the stock price falls in the future. Even if the stock falls to $10, you can still sell that stock for $50 as long as the put option has not expired. One point to notice is that unlike call options and warrants, put options have a limited profit. The lowest price a security can ever reach is zero, meaning the most profit you can ever earn is the full strike price. Since the payoff of purchased put options increases as the stock price falls, buying put options is considered bearish.

Conversely, you can short or "write" a put option, giving the buyer the right to sell you that stock for $50 at anytime before the option expires. To compensate you for that risk taken, the buyer pays you a premium, also known as the price of the put. If the stock rises to above $50, the buyer of the put option will never exercise the option to sell you that stock for $50, so the option expires worthless and you pocket the premium as profit. Since the payoff of sold, or written put options increases as the stock price rises, selling put options is considered bullish.

Every put option has the following three characteristics:

  • Strike price: this is the price at which you can sell your stock (if you have bought a put option) or the price at which you must buy the stock (if you have sold a put option).
  • Expiry date: this is the date on which the option expires, or becomes worthless, if nobody exercises it.
  • Premium: this is the price you pay when you buy an option and the price you receive when you sell an option.


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