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option: if the stock price is above the strike price at expiration, the option seller keeps the premium, and the option expires worthless. During the option's lifetime, if the stock moves lower, the option's premium may increase (depending on how far the stock falls and how much time passes). If it does, it becomes more costly to close the position (repurchase the put, sold earlier), resulting in a loss. If the stock price completely collapses before the put position is closed, the put writer potentially can face catastrophic loss. In order to protect the put buyer from default, the put writer is required to post
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when expiration arrives, the option owner (buyer) can exercise the put option, forcing the writer to buy the underlying stock at the strike price. That allows the exerciser (buyer) to profit from the difference between the stock's market price and the option's strike price. But if the stock's market
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for $ 50 per share. The current price is $ 50 per share, and Trader A pays a premium of $ 5 per share. If the price of XYZ stock falls to $ 40 a share right before expiration, then Trader A can exercise the put by buying 100 shares for $ 4,000 from the stock market, then selling them to Trader B for
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The put buyer/owner is short on the underlying asset of the put, but long on the put option itself. That is, the buyer wants the value of the put option to increase by a decline in the price of the underlying asset below the strike price. The writer (seller) of a put is long on the underlying asset
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The put buyer either believes that the underlying asset's price will fall by the exercise date or hopes to protect a long position in it. The advantage of buying a put over short selling the asset is that the option owner's risk of loss is limited to the premium paid for it, whereas the asset short
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The seller's potential loss on a naked put can be substantial. If the stock falls all the way to zero (bankruptcy), his loss is equal to the strike price (at which he must buy the stock to cover the option) minus the premium received. The potential upside is the premium received when selling the
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Put options are most commonly used in the stock market to protect against a fall in the price of a stock below a specified price. If the price of the stock declines below the strike price, the holder of the put has the right, but not the obligation, to sell the asset at the strike price, while the
303:
seller's risk of loss is unlimited (its price can rise greatly, in fact, in theory it can rise infinitely, and such a rise is the short seller's loss). The put buyer's prospect (risk) of gain is limited to the option's strike price less the underlying's spot price and the premium/fee paid for it.
338:
or other instrument. This strategy is best used by investors who want to accumulate a position in the underlying stock, but only if the price is low enough. If the buyer fails to exercise the options, then the writer keeps the option premium. If the underlying stock's market price is below the
306:
The put 'writer' believes that the underlying security's price will rise, not fall. The writer sells the put to collect the premium. The put writer's total potential loss is limited to the put's strike price less the spot and premium already received. Puts can be used also to limit the writer's
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If, however, the share price never drops below the strike price (in this case, $ 50), then Trader A would not exercise the option (because selling a stock to Trader B at $ 50 would cost Trader A more than that to buy it). Trader A's option would be worthless and he would have lost the whole
295:
The terms for exercising the option's right to sell it differ depending on option style. A European put option allows the holder to exercise the put option for a short period of time right before expiration, while an
American put option allows exercise at any time before expiration.
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can be exercised only on specific dates listed in the terms of the contract. If the option is not exercised by maturity, it expires worthless. (The buyer will not usually exercise the option at an allowable date if the price of the underlying is greater than
315:
and short on the put option itself. That is, the seller wants the option to become worthless by an increase in the price of the underlying asset above the strike price. Generally, a put option that is purchased is referred to as a
283:. In the protective put strategy, the investor buys enough puts to cover their holdings of the underlying so that if the price of the underlying falls sharply, they can still sell it at the strike price. Another use is for
478:", otherwise its value is zero. Prior to exercise, an option has time value apart from its intrinsic value. The following factors reduce the time value of a put option: shortening of the time to expire, decrease in the
389:
The writer receives a premium from the buyer. If the buyer exercises their option, the writer will buy the stock at the strike price. If the buyer does not exercise their option, the writer's profit is the premium.
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investment, the fee (premium) for the option contract, $ 500 ($ 5 per share, 100 shares per contract). Trader A's total loss is limited to the cost of the put premium plus the sales commission to buy it.
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A buyer thinks the price of a stock will decrease. They pay a premium that they will never get back, unless it is sold before it expires. The buyer has the right to sell the stock at the strike price.
344:
price is above the option's strike price at the end of expiration day, the option expires worthless, and the owner's loss is limited to the premium (fee) paid for it (the writer's profit).
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The most widely traded put options are on stocks/equities, but they are traded on many other instruments such as interest rates (see interest rate floor) or commodities.
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seller of the put has the obligation to purchase the asset at the strike price if the owner uses the right to do so (the holder is said to
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the option). In this way the buyer of the put will receive at least the strike price specified, even if the asset is currently worthless.
1080:
201:
Puts may also be combined with other derivatives as part of more complex investment strategies, and in particular, may be useful for
420:). The put option premium paid to Trader B for buying the contract of 100 shares at $ 5 per share, excluding commissions = $ 500 (
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1105:
352:. The put buyer does not need to post margin because the buyer would not exercise the option if it had a negative payoff.
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100:
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255:. The put yields a positive return only if the underlying price falls below the strike when the option is exercised. A
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Matthias
Burghardt; Marcel Czink; Ryan Riordan (29 February 2008). "Retail Investor Sentiment and the Stock Market".
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can be calculated at $ 500. The sale of the 100 shares of stock at a strike price of $ 50 to Trader B = $ 5,000 (
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198:. The term "put" comes from the fact that the owner has the right to "put up for sale" the stock or index.
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287:: an investor can take a short position in the underlying stock without trading in it directly.
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190:(i.e. seller) of the put. The purchase of a put option is interpreted as a negative
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Contract giving a seller the right to sell an asset to the buyer at a set price
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205:. Holding a European put option is equivalent to holding the corresponding
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purchases a put contract to sell 100 shares of XYZ Corp. to "Trader B"
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474:). Upon exercise, a put option is valued at K-S if it is "
416:). The purchase of 100 shares of stock at $ 40 = $ 4,000 (
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The most obvious use of a put option is as a type of
482:of the underlying, and increase of interest rates.
60:. Unsourced material may be challenged and removed.
319:and a put option that is sold is referred to as a
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603:page 15 | 4.2.3 Positive and negative sentiment
244:the buyer can exercise the put for a payout of
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251:any time until the option's maturity date
194:about the future value of the underlying
120:Learn how and when to remove this message
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1476:Power reverse dual-currency note (PRDC)
1416:Constant proportion portfolio insurance
14:
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458:when the underlying instrument has a
444:= ($ 5,000 − $ 4,000) − $ 500 = $ 500
307:portfolio risk and may be part of an
1411:Collateralized debt obligation (CDO)
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174:), by (or on) a specified date (the
58:adding citations to reliable sources
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617:Basic Options Concepts: Put Options
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356:Example of a put option on a stock
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535:CBOE S&P 500 PutWrite Index
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236:the value of the underlying is
156:(i.e. the purchaser of the put
45:needs additional citations for
1238:Year-on-year inflation-indexed
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263:rather than at any time until
259:can only be exercised at time
213:. This equivalence is called "
13:
1:
1248:Zero-coupon inflation-indexed
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454:A put option is said to have
168:), at a specified price (the
7:
1451:Foreign exchange derivative
843:Callable bull/bear contract
564:Interest rate cap and floor
543:, also called the "Fed put"
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470:the option's strike price (
209:and selling an appropriate
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408:Trader A's total earnings
372:Payoff from writing a put.
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364:Payoff from buying a put.
1471:Mortgage-backed security
1466:Interest rate derivative
1441:Equity-linked note (ELN)
1426:Credit-linked note (CLN)
486:is a central problem of
1421:Contract for difference
722:Risk-free interest rate
160:) the right to sell an
1203:Forward Rate Agreement
530:Right of first refusal
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1431:Credit default option
775:Employee stock option
559:Credit default option
488:financial mathematics
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1385:Inflation derivative
1370:Commodity derivative
1342:Single-stock futures
1332:Normal backwardation
1322:Interest rate future
1163:Conditional variance
669:Derivative (finance)
54:improve this article
1537:Business portal
1390:Property derivative
18:European put option
1395:Weather derivative
1380:Freight derivative
1362:Exotic derivatives
1282:Commodities future
969:Intermarket spread
732:Synthetic position
660:Derivatives market
569:Options on futures
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1558:Options (finance)
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1446:Equity derivative
1436:Credit derivative
1404:Other derivatives
1375:Energy derivative
1337:Perpetual futures
1218:Overnight indexed
1168:Constant maturity
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1076:Finite difference
1009:Protective option
520:Pre-emption right
515:Option time value
330:, also called an
291:Instrument models
228:If the strike is
150:financial markets
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1307:Forwards pricing
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1019:Risk reversal
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385:Writing a put
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110:November 2015
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43:This article
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1312:Forward rate
1223:Total return
1111:Real options
1014:Ratio spread
994:Naked option
954:Debit spread
799:
785:Fixed income
727:Strike price
625:
588:
476:in-the-money
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377:Buying a put
346:
341:strike price
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69:"Put option"
64:
52:Please help
47:verification
44:
1243:Zero Coupon
1173:Correlation
1121:Vanna–Volga
979:Iron condor
765:Bond option
574:Real option
547:Married put
500:Call option
396:(Put Buyer)
394:"Trader A"
285:speculation
207:call option
1517:Tax policy
1233:Volatility
1143:Amortising
984:Jelly roll
919:Box spread
914:Backspread
906:Strategies
742:Volatility
737:the Greeks
702:Expiration
580:References
480:volatility
460:spot price
166:underlying
146:derivative
142:put option
80:newspapers
1208:Inflation
1158:Commodity
1116:Trinomial
1051:Bachelier
1043:Valuation
924:Butterfly
858:Commodore
707:Moneyness
505:Naked put
339:option's
328:naked put
321:short put
281:insurance
192:sentiment
186:) to the
1552:Category
1347:Slippage
1277:Contango
1261:Forwards
1228:Variance
1188:Dividend
1183:Currency
1096:Margrabe
1091:Lattices
1070:equation
1056:Binomial
1004:Strangle
999:Straddle
896:Swaption
878:Lookback
863:Compound
805:Warrants
780:European
760:American
752:Vanillas
717:Pin risk
697:Exercise
494:See also
403:$ 5,000.
317:long put
267:, and a
223:exercise
183:maturity
1266:Futures
886:Rainbow
853:Cliquet
848:Chooser
828:Barrier
815:Exotics
677:Options
599:1100038
553:Options
424:). Thus
203:hedging
134:finance
94:scholar
1327:Margin
1193:Equity
1086:Heston
989:Ladder
939:Condor
934:Collar
891:Spread
838:Binary
833:Basket
597:
350:margin
188:writer
177:expiry
171:strike
158:option
154:holder
96:
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75:
67:
1198:Forex
1153:Basis
1148:Asset
1135:Swaps
1061:Black
964:Fence
823:Asian
685:Terms
537:(PUT)
468:below
336:stock
249:−S(t)
196:stock
164:(the
162:asset
144:is a
101:JSTOR
87:books
1032:Bull
1028:Bear
770:Call
595:SSRN
440:) −
238:S(t)
136:, a
73:news
800:Put
619:at
432:= (
276:.)
217:".
180:or
140:or
138:put
132:In
56:by
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1030:,
790:FX
490:.
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436:−
422:R)
326:A
323:.
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1068:(
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645:t
638:v
601:.
472:K
464:S
462:(
442:R
438:Q
434:P
430:S
418:Q
414:P
410:S
274:K
265:T
261:T
253:T
247:K
234:t
230:K
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117:(
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108:(
98:·
91:·
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50:.
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