 A graphical interpretation of the payoffs and profits generated by a put option as seen by the purchaser of the option. A lower stock price means a higher profit. Eventually, the price of the underlying (i.e. stock) will be low enough to fully compensate for the price of the option.
 A graphical interpretation of the payoffs and profits generated by a put option as seen by the writer of the option. Profit is maximized when the option expires worthless (when the price of the underlying exceeds the strike price), and the writer keeps the premium. | A put option (sometimes simply called a "put") is a financial contract between two parties, the buyer and the writer of the option. The put allows the buyer the right but not the obligation to sell a commodity or financial instrument (the underlying instrument) to the writer of the option at a certain time for a certain price (the strike price). The writer has the obligation to purchase the underlying asset at that strike price, if the buyer exercises the option. Image File history File links PutOption. ...
Image File history File links PutOption. ...
Image File history File links PutWrite. ...
Image File history File links PutWrite. ...
Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects. ...
A contract is a legally binding exchange of promises or agreement between parties. ...
In finance, an option is a contract whereby one party (the holder or buyer) has the right but not the obligation to exercise a feature of the contract (the option) on or before a future date (the exercise date or expiry). ...
Commodity is a term with distinct meanings in both business and in Marxian political economy. ...
Financial instruments package financial capital in readily tradeable forms - they do not exist outside the context of the financial markets. ...
In finance, an underlying is an investment from which a derivative security is derived. ...
The strike price, or exercise price, is a key variable in a derivatives contract between two parties. ...
Note that the writer of the option is agreeing to buy the underlying asset if the put holder exercises the option. In exchange for having this option, the buyer pays the writer a fee (the premium). (Note: Although option writers are frequently referred to as sellers, because they initially sell the option that they create, thus, taking a short position in the option, they are not the only sellers. An option holder can also sell his long position in the option. However, the difference between the two sellers is that the option writer takes on the legal obligation to buy the underlying asset at the strike price, whereas, the option holder is merely selling his long position, and is not contractually obligated by the sold option.)
Exact specifications may 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. An American put option allows exercise at any time during the life of the option. In finance, the style or family of an option is a general term denoting the class into which the option falls, usually defined by the dates on which the option may be exercised. ...
The style or family of a financial option is a general term denoting the class into which the option falls, usually defined by the manner in which the option may be exercised. ...
The style or family of a financial option is a general term denoting the class into which the option falls, usually defined by the manner in which the option may be exercised. ...
The most widely-known put option is for stock in a particular company. However, options are traded on many other assets: financial - such as interest rates (see interest rate floor) - and physical, such as gold or crude oil. It has been suggested that shareholder be merged into this article or section. ...
Interest is the rent paid to borrow money. ...
Interest rate cap An interest rate cap is a series of European call options or caplets on a specified interest rate, usually the LIBOR interest rate. ...
General Name, Symbol, Number gold, Au, 79 Chemical series transition metals Group, Period, Block 11, 6, d Appearance metallic yellow Atomic mass 196. ...
Pumpjack pumping an oil well near Sarnia, Ontario Petroleum (from Greek petra – rock and elaion – oil or Latin oleum – oil ) or crude oil is a thick, dark brown or greenish liquid. ...
The buyer of the put either expects the price of the underlying asset to fall or to protect a long position in the asset. The advantage of buying a put over shorting the asset is that the risk is limited to the premium. The put writer does not expect the price of the underlying to fall, and so writes the put to collect the premium. Puts can also be used to limit portfolio risk, and may be part of an option spread.
Example of a put option on a stock Buy A Put : Buyer thinks price of stock will decrease. Pay a Premium which buyer will never get back. The buyer has the right to sell the stock at strike price. Write a put: Writer receives a premium, if Buyer exercises the option Writer will buy the stock at strike price, If Buyer does not exercise the option, writer's profit is Premium - I purchase a put contract to sell 100 shares of XYZ Corp. for 50. The current price is 55, and I pay a premium of 5. If the price of XYZ stock falls to 40 per share right before expiration, then I can exercise my put by buying 100 shares for 4,000, then selling it to a put writer for 5,000. My total profit would equal 500 (5,000 from put writer - 4,000 for buying the stock - 500 for buying the put contract of 100 shares at 5 per share, excluding commissions).
- If, however, the share price never drops below the strike price (in this case, 50), then I would not exercise the option. (Why sell a stock to someone at 50, the strike price, if it would cost me more than that to buy it?) My option would be worthless and I would have lost my whole investment, the fee (premium) for the option contract, 500 (5 per share, 100 shares per contract). My total loss is limited to the cost of the put premium plus the sales commission to buy it.
This example illustrates that the put option has positive monetary value when the underlying instrument has a spot price (S) below the strike price (K). Since the option will not be exercised unless it is "in-the-money", the payoff for a put option is The spot price of a commodity or a security or a currency is the price that is quoted for settlement (payment and delivery) of the transaction immediately. ...
In finance, moneyness is a measure of the degree to which a derivative security is likely to have positive monetary value at its expiration. ...
- max[(K − S) ; 0] or formally, (K − S) +
- where :
 Prior to exercise, the option value, and therefore price, varies with the underlying price and with time. The put price must reflect the "likelihood" or chance of the option "finishing in-the-money". The price should thus be higher with more time to expiry, and with a more volatile underlying instrument. The science of determining this value is the central tenet of financial mathematics. The most common method is to use the Black-Scholes formula. Whatever the formula used, the buyer and seller must agree on this value initially. Volatility most frequently refers to the standard deviation of the change in value of a financial instrument with a specific time horizon. ...
Mathematical finance is the branch of applied mathematics concerned with the financial markets. ...
The Black-Scholes model, often simply called Black-Scholes, is a model of the varying price over time of financial instruments, and in particular stocks. ...
Related
A call option is a financial contract between two parties, the buyer and the seller of this type of option. ...
In finance, moneyness is a measure of the degree to which a derivative security is likely to have positive monetary value at its expiration. ...
Option Value In finance, the value of an option consists of two components, its intrinsic value and its time value. ...
In finance, the style or family of an option is a general term denoting the class into which the option falls, usually defined by the dates on which the option may be exercised. ...
In financial mathematics, put-call parity defines a relationship between the price of a European call option and a European put option - both with the identical strike price and expiry. ...
See also The Chicago Board Options Exchange (CBOE) is one of the worlds largest options exchanges with an annual trade of over 15 billion shares of stock options in some 1200 companies. ...
Derivatives traders at the Chicago Board of Trade. ...
The derivatives markets are the financial markets for derivatives. ...
Financial economics is the branch of economics concerned with resource allocation over time. ...
Financial instruments package financial capital in readily tradeable forms - they do not exist outside the context of the financial markets. ...
Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects. ...
In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. ...
An option screener is a tool that evaluates options based on criteria and generates a list of potential trading ideas. ...
Options A binary option is a type of option where the payoff is either some fixed amount of some asset or nothing at all. ...
A bond option is similar to a stock option with the difference that the underlying asset is a bond. ...
Payoffs and profits from buying stock and writing a call. ...
In finance, a default option or credit default option is a put option that makes a payoff in the event the issuer of a specified reference asset defaults. ...
An interest rate derivate is a derivative security where the underlying asset is the right to pay or receive a (usually notional) amount of money at a given interest rate. ...
In finance, a foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. ...
// Interest rate cap An interest rate cap is a derivative in which the buyer receives money at the end of each period in which an interest rate exceeds the agreed strike price. ...
In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. ...
A naked put is a put option where the option writer does not have a short position in the stock. ...
A real option is the right, but not the obligation, to undertake some business decision, typically the option to make a capital investment. ...
Main article: Option A stock option is a specific type of option that uses the stock itself as an underlying instrument to determine the options pay-off (and therefore its value). ...
To meet Wikipedias quality standards, this article or section may require cleanup. ...
For other uses of the term Warrant, see Warrant (disambiguation) A warrant is a security that entitles the holder to buy or sell a certain additional quantity of an underlying security. ...
External links
This article talks about the aftermath of the September 11, 2001 attacks. ...
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