Put option definition
A naked putalso called an uncovered putis a put option whose writer the seller does not have a put option definition in the underlying stock or other instrument. The potential upside is the premium received when selling the option: If the buyer exercises his option, the writer will buy the stock at the strike price. In finance, a put or put option is a stock market device which gives the owner of a put the right, but not the obligation, to sell an asset the underlyingat a specified price the strikeby a predetermined date the put option definition or maturity to a given party the seller of the put. This page optimarkets binary options review binary trading options and cryptocurrency trading options last edited on 18 Januaryat
Generally, a put option that is purchased is referred to as a long put and a put option that is sold is referred to as a short put. The put buyer either believes that the underlying asset's price will fall by the exercise date or hopes to protect a long position put option definition it. A European put option allows the holder to exercise the put option for a short period of time right before expiration, while an American put option definition option allows exercise at any time before expiration.
The buyer has the right to sell the stock at the strike price. In order to protect the put buyer from default, the put writer is required to post margin. Puts may also be combined with other derivatives as part of more complex investment strategies, and in put option definition, may be useful for hedging.
The terms for exercising the option's right to sell it differ depending on option style. During the option's lifetime, if the stock moves lower, the option's premium may put option definition depending on how far the stock falls and how much time passes. The following factors reduce the time value of a put option:
The put writer believes that the underlying security's price put option definition rise, not fall. Articles needing additional references from November All articles needing additional references. The put yields a positive return only if the security price falls below the strike when the option is exercised. The writer receives a premium from the buyer.
The potential upside is put option definition premium received when selling the option: During the option's lifetime, if the stock moves lower, the option's premium may increase depending on how far the stock falls and how much put option definition passes. The writer receives a premium from the buyer. If the buyer fails to exercise the options, then the writer keeps the option premium as a "gift" for playing the game.
In order to put option definition the put buyer from default, the put writer is required to post margin. The writer sells the put to collect the premium. The buyer will not exercise the option at an allowable date if the price of the underlying is greater than K. Views Read Edit View history. Moreover, the dependence of the put option definition option value to those factors is not linear — which makes the analysis even more complex.
If the strike is Kand at time t the value of the underlying is Put option definition tthen in an American option the buyer can exercise the put for a payout of K-S t any time until the option's maturity put option definition T. Put options are most commonly used in the stock market to protect against the decline of the price of a stock below a specified price. Please help improve this article by adding citations to reliable sources.
The graphs clearly shows put option definition non-linear dependence of the option value to the base asset price. He pays a premium which he will never get back, unless it is sold before it expires. Generally, a put option put option definition is purchased is referred to as a long put and a put option that is sold is referred to as a short put.
In the protective put strategy, the investor buys enough puts to cover his holdings of the underlying so that if a drastic downward movement of the underlying's price put option definition, he has the option to sell the holdings at the strike price. The potential upside is the premium received when selling the option: Retrieved from " https: A European option can only be exercised at time T rather than any time until Tand a Bermudan put option definition can be exercised only on specific dates listed in the terms of the contract.