Put Option

AAA

DEFINITION of 'Put Option'

An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a call option, which gives the holder the right to buy shares.

INVESTOPEDIA EXPLAINS 'Put Option'

A put becomes more valuable as the price of the underlying stock depreciates relative to the strike price. For example, if you have one Mar 08 Taser 10 put, you have the right to sell 100 shares of Taser at $10 until March 2008 (usually the third Friday of the month). If shares of Taser fall to $5 and you exercise the option, you can purchase 100 shares of Taser for $5 in the market and sell the shares to the option's writer for $10 each, which means you make $500 (100 x ($10-$5)) on the put option. Note that the maximum amount of potential proft in this example ignores the premium paid to obtain the put option.

VIDEO

RELATED TERMS
  1. Put On A Put

    One of the four types of compound options, this is a put option ...
  2. Fence (Options)

    A fence or collar is an option strategy that establishes a trading ...
  3. Short (or Short Position)

    1. The sale of a borrowed security, commodity or currency with ...
  4. Seller's Option

    The right of a forward contract seller to choose some of the ...
  5. Net Option Premium

    The net amount an investor or trader will pay for selling one ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) ...
Related Articles
  1. How To Avoid Closing Options Below Intrinsic ...
    Options & Futures

    How To Avoid Closing Options Below Intrinsic ...

  2. Profiting In Bear And Bull Markets
    Options & Futures

    Profiting In Bear And Bull Markets

  3. The Barnyard Basics Of Derivatives
    Investing Basics

    The Barnyard Basics Of Derivatives

  4. Practical And Affordable Hedging Strategies
    Options & Futures

    Practical And Affordable Hedging Strategies

comments powered by Disqus
Hot Definitions
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  2. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  3. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  4. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  5. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  6. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
Trading Center