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 believes the underlying asset will drop below the exercise price before the expiration date. The exercise price is the price the underlying asset must reach for the put option contract to hold value.

Put Option

The possible payoff for a holder of a put option contract is illustrated by the following diagram:. A call option gives the holder the right, but not the obligation, to buy a stock at a certain price in the future. When an investor buys a call, she expects the value of the underlying asset to go up.

A put is the exact opposite. When an investor purchases a put, she expects the underlying asset buying a put option investopedia decline in price.

The investor then profits by selling the put option at a profit or exercising the option. An investor can also 60 sec binary options rsi strategies a put option for another investor to buy.

If an investor writes a put contract, she does not expect the stock's price to drop below the exercise price.

Each option contract covers shares. There are other ways to work a put option as a hedge. If the investor in the previous example already owns shares of ABC company, it is referred to as a "married put" position and serves as a hedge against a decline in share price.

Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund.

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