Put To Seller


DEFINITION of 'Put To Seller'

The exercise of a put option. Put to seller would usually occur when the strike price of the put is lower than the market value of the underlying security. At this point, the seller would have the option, but not the obligation to sell the asset to the option writer for a higher price than what is currently dictated by the market.


For example, consider a situation where an investor buys puts to hedge downside risk in his or her position in stock A. The investor buys three-month puts on A with a strike price of $25 and pays a premium of $1.50 (for example). The put seller or writer who earns the premium of $1.50 assumes the risk of buying A from the investor if it falls below $25. Towards the end of the three-month period, if stock A is trading at $22, the investor will sell stock A to the put writer, and receive $25 for each share of stock A.

  1. Assignment

    1. The transfer of an individual's rights or property to another ...
  2. Put Option

    An option contract giving the owner the right, but not the obligation, ...
  3. Premium

    1. The total cost of an option. 2. The difference between the ...
  4. Strike Price

    The price at which a specific derivative contract can be exercised. ...
  5. Underlying

    1. In derivatives, the security that must be delivered when a ...
  6. Put-Call Parity

    A principle that defines the relationship between the price of ...
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