Put

Loading the player...

What is a 'Put'

A put is an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time. The buyer of a put option estimates that the underlying asset will drop below the exercise price before the expiration date.

The possible payoff for a holder of a put option contract is illustrated by the following diagram:

Put

BREAKING DOWN 'Put'

When an investor purchases a put, he or she expects the underlying asset will decline in price. The investor will then profit by either selling the put options at a profit, or by exercising the option. If an investor writes a put contract, he or she is estimating the stock will not decline below the exercise price, and will not fall significantly below the exercise price.

Consider if an investor purchased one put option contract for 100 shares of ABC Co. for $1, or $100 ($1*100). The exercise price of the shares is $10 and the current ABC share price is $12. This contract has given the investor the right, but not the obligation, to sell shares of ABC at $10.

If ABC shares drop to $8, the investor's put option is in-the-money and he can close his option position by selling the contract on the open market. On the other hand, he can purchase 100 shares of ABC at the existing market price of $8, then exercise his contract to sell the shares for $10. Excluding commissions, the total profit for this position would be $100 [100*($10 - $8 - $1)]. If the investor already owned 100 shares of ABC, this is called a "married put" position and serves as a hedge against a decline in share price.

RELATED TERMS
  1. Exercise

    To put into effect the right specified in a contract. In options ...
  2. Exercise Price

    The price at which the underlying security can be purchased (call ...
  3. Call Over

    When the buyer of a call option exercises the option. In options ...
  4. Aggregate Exercise Price

    The strike price of a put or call option multiplied by its contract ...
  5. Early Exercise

    The exercise of an option prior to its expiration date. Early ...
  6. Call On A Call

    A type of compound option in which the investor has the right ...
Related Articles
  1. Professionals

    Calls And Puts

    Calls And Puts
  2. Options & Futures

    Three Ways to Profit Using Put Options

    A brief overview of how to profit from using put options in your portfolio.
  3. Professionals

    Options: Calls and Puts

    CFA Level 1 - Options: Calls and Puts. Learn the two main types of option derivatives and how each benefits its holder. Provides an example multiple choice question for an option.
  4. Term

    Explaining Underlying Assets

    An underlying asset is the financial instrument from which a derivative's price is based.
  5. Professionals

    Possible Outcomes For An Option

    Exercised If the option is exercised, the buyer has elected to exercise their rights to buy or sell the stock depending on the type of option involved. Exercising an option obligates the seller ...
  6. Professionals

    F. Characteristics of All Options

    All option contracts are issued and their performance is guaranteed by the Options Clearing Corporation (OCC). Standardized options trade on the exchanges, such as the Chicago Board Options Exchange ...
  7. Professionals

    POSSIBLE OUTCOMES FOR AN OPTION

    Possible Outcomes For an Option Exercised If the option is exercised, the buyer has elected to exercise their rights to buy or sell the stock depending on the type of option involved. Exercising ...
  8. Options & Futures

    Options on Futures

    Options on futures contracts offer another way for day traders to use options. These are traded on the same exchange as the underlying futures contract. Traders should take care to understand ...
  9. Options & Futures

    How To Sell Put Options To Benefit In Any Market

    As long as the underlying stocks are of companies you are happy to own, put selling can be a lucrative strategy.
  10. Options & Futures

    4 Reasons To Hold Onto An Option

    There are times when an investor shouldn't exercise an option. Find out when to hold and when to fold.
RELATED FAQS
  1. After exercising a put option, can I still hold my option contract in order to sell ...

    Once a put option contract has been exercised, that contract does not exist anymore. A put option grants you the right to ... Read Answer >>
  2. How is a put option exercised?

    A put option is a contract that gives the option holder the right, but not obligation, to sell a set amount of shares (1 ... Read Answer >>
  3. When is a put option considered to be "in the money"?

    Learn about put options, what they are, how these financial derivatives operate and when put options are considered to be ... Read Answer >>
  4. How do I change my strike price once the trade has been placed already?

    Learn how the strike prices for call and put options work, and understand how different types of options can be exercised ... Read Answer >>
  5. How can I profit with call options?

    Learn what a call option and a long call strategy are, how to speculate stock price increases using a call option and how ... Read Answer >>
  6. How do you use put options to profit from a bear market?

    Learn how traders use put options in their trading strategies to remain profitable, even in a bear market. Everyday investors ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center