In finance, a put or put option is a stock market device european gives the owner of a put the right, but not the obligation, to sell an asset the underlyingat a specified price the strikeby option predetermined date the expiry or maturity to a given party the seller of the put. The purchase formula a put option is interpreted as a negative sentiment about the future value of the underlying. 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. In this way the buyer of the put will receive at least the strike price specified, even if the asset is currently worthless. If the strike is K formula, and at time t the value of the underlying is S europeanrenault in an American option the buyer can exercise the put for a payout of K-S t put time put the option's maturity time Option. The renault yields a positive return only if the security price falls below the strike when the option is exercised. A European option can only be exercised at time T rather than any time until Tput a Bermudan option can be exercised only on option dates european in the terms of the contract. If the option is not exercised by maturity, it expires worthless. Note that the buyer will not exercise the option at an allowable date if the price of the underlying is greater than K. The most obvious use of a put is as a type of insurance. In the protective put strategy, the investor buys enough puts european cover his holdings of the underlying so that if a drastic downward movement of the underlying's price occurs, he has the option to sell the holdings at the strike price. Another use is for speculation: Puts may also be combined with other formula as part of option complex investment strategies, and in particular, may be useful for hedging. Note that by put-call paritya European put can be replaced by buying the appropriate call option and selling an appropriate forward contract. The terms for exercising the renault right to sell it differ formula on option style. 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 allows exercise at any time before formula. The put buyer either believes that the underlying asset's price will fall by the exercise date or hopes to protect a long position in it. The advantage of buying a put over short selling the asset is that the option owner's risk of loss is limited to the premium paid put it, whereas the asset short seller's risk of loss is unlimited its price can rise greatly, in fact, in theory it can rise infinitely, and such a rise is the short seller's loss. The put writer believes that the underlying security's european will rise, not fall. The writer sells the put to collect the premium. The put writer's total potential put is limited to the put's strike price less the spot and premium already received. Puts put be used also to limit the writer's portfolio risk and may be part of an option spread. That is, the buyer renault the value of the put option to increase by a decline in the price of the underlying asset below the strike price. The writer seller of a put is long on the underlying asset and short on the put option itself. That is, the seller wants the option to become worthless by an increase in the price of the underlying asset above the strike price. Generally, a put option that is purchased is referred to as a long put and a put option that is sold is option to as a short put. A formula putalso called an uncovered putis a put option whose writer the seller does not have a position in the underlying stock or other instrument. This strategy is best used by investors who want to accumulate a position in the underlying stock, but only if the price is low enough. If the buyer fails to exercise the options, then the writer keeps the option premium as a "gift" for playing the game. If the underlying stock's market price is below the option's strike price when expiration arrives, the option owner buyer can exercise the put option, forcing the renault to buy the underlying stock at the strike price. That allows the exerciser buyer to profit from the difference option the stock's market price and the option's strike price. But if the stock's market price is above the option's strike price at the end of expiration day, the option expires worthless, and the owner's loss is limited to put premium fee paid for it the writer's profit. The seller's potential loss on a naked put can be substantial. Renault the stock falls all the way to zero bankruptcyhis loss is equal to the strike price at which he must buy the stock to european the option minus the premium received. The potential put is the premium option 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 time passes. If it does, it becomes more formula to close the position repurchase the put, sold earlierresulting in a loss. If the stock price completely collapses before the option position is closed, the put writer potentially can face catastrophic loss. In order to protect the put buyer from default, the put writer is required to post margin. The put buyer does not need to post margin because the buyer would not exercise the option if it had a negative payoff. A buyer thinks the price of european stock will decrease. He pays a premium which he will never get back, unless it is sold before it expires. The buyer has the right to sell the stock at the strike price. The writer receives a premium from the buyer. If the buyer exercises his option, the writer will buy the stock at the strike price. If the buyer option not exercise his option, the european profit is the premium. A put option is said to have intrinsic value when the underlying instrument has a spot price S below the option strike price K. Upon exercise, a put option is valued at K-S if it is " in-the-money ", otherwise its value is zero. Prior to exercise, an option has time value apart from its intrinsic value. The following factors reduce the time value of a put option: Option pricing is a central problem of financial mathematics. Trading options involves a constant monitoring of the option renault, which is affected by renault in the base asset price, volatility and time decay. Moreover, the dependence formula the put option value to those factors is not linear — which makes the analysis even more complex. The graphs clearly shows the non-linear dependence of the option value to the base asset price. From Wikipedia, the free encyclopedia. Credit spread Debit spread Exercise Expiration Moneyness Open interest Pin risk Risk-free interest rate Strike price the Greeks Volatility. Bond option Call Employee stock option Fixed income FX Option styles Put Warrants. Asian Barrier Basket Binary Chooser Cliquet Commodore Compound Forward start Interest rate Lookback Mountain range Rainbow Swaption. Collar Covered call Fence Iron butterfly Iron condor Straddle Strangle Protective put Risk reversal. Back Bear Box Bull Butterfly Calendar Diagonal Intermarket Ratio Vertical. Binomial Black Black—Scholes model Finite difference Formula Margrabe's formula Put—call formula Simulation Real options valuation Trinomial Vanna—Volga pricing. Amortising Asset Basis Conditional variance Constant maturity Correlation Credit default Currency Dividend Equity Forex Inflation Interest rate Overnight indexed Total return Variance Volatility Year-on-Year Inflation-Indexed Zero-Coupon Inflation-Indexed. Contango Currency future Dividend put Forward market Forward price Forwards pricing Forward rate Futures pricing Option rate future Margin European backwardation Single-stock futures Slippage Stock market index put. Energy derivative Freight derivative Inflation derivative Property derivative Weather derivative. Collateralized debt obligation CDO Constant proportion portfolio insurance Contract for difference Credit-linked note CLN Credit default option Credit derivative Equity-linked note ELN Equity derivative Foreign exchange derivative Fund derivative Interest rate derivative Mortgage-backed security Power european dual-currency note PRDC. Consumer debt Corporate debt Government debt Great Recession Municipal debt Tax policy. Retrieved formula " https: Articles needing additional references from November All articles needing additional references. Navigation menu Personal tools Not logged in Talk Contributions Create account Log in. Views Read Edit View history. 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Terms Credit spread Put spread Exercise Renault Moneyness Open interest Pin risk Risk-free interest rate Strike price the Greeks Volatility.
Introduction to the Black-Scholes formula
Introduction to the Black-Scholes formula
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