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

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center