Put Option

Definition: Put Option

Put Option

Noun

1. An option to sell.

2. The option to sell a given stock (or stock index or commodity future) at a given price before a given date.

Specialty Definition: Put Option

Domain	Definition
Agriculture	An option contract to sell a futures contract at an agreed price and time at any time until the expiration of the option. A put option is purchased to protect against a fall in price. The buyer pays a premium to the seller of this option. The buyer has the right to sell the futures contract or enter into a short position in the futures market if the option is exercised. See call option. (references)
Finance	Option contract that gives the holder the right to sell a standardized quantity of a specified asset at a fixed price at or within a designated date or the right to receive the exercise price of the option less the settlement price of the underlying value. Source: European Union. (references)
	An option contract that gives the holder the right to sell a standardized quantity of a specified asset at a fixed price at or within a designated date or the right to receive the exercise price of the option less the settlement price of the underlying value ; a contract which entitles one party to it, at his option, to sell a specified amount of securities or commodities to the other party, at the price fixed in the contract, during the life of the contract. Source: European Union. (references)
Source: compiled by the editor from various references; see credits.

Specialty Definition: Put option

A put option is a financial contract between two parties, the buyer and the seller of the option, that allows the buyer, then owner, of the option the right but not the obligation to sell a commodity or financial instrument (the underlying) to the seller of the option at a certain time (or times depending on the exact specification of the contract) for a certain price, known as the strike.

Note that the seller of the option undertakes to buy the underlying! In exchange for being granted this option, the buyer pays the seller a fee.

The most widely-known put option is the option to sell stock in a particular company. This is a stock option. However options are traded on many other quantities both financial, such as interest rates (called an interest rate cap) or foreign exchange rates (see foreign exchange option) and physical such as gold or crude oil.

Example of a put option on a stock

I might enter a contract to have the option to sell a share in Microsoft Corp. on June 1 2003 for $50. If the share price is actually $40 on that day then I would exercise my option (i.e. sell the share from the counter-party). I could then buy another share in the open market for $40, i.e. the option would be worth $10; my profit would be $10 minus the fee I paid for the option. If however the share price is as much as $60 then I would not exercise the option (if I really wanted to sell such a share, I could do so in the open market for $60). My option would be worthless and I would have lost my whole investment, the fee for the option. Thus in any future state of the world, I am certain not to lose money by owning the option, my loss is limited to the fee I have paid. This implies that the option itself must have some positive value, the fee mentioned above. It varies with the share price.

The science of determining this value is the central tenet of financial mathematics. The most common method is to use the Black-Scholes formula.

The value of a put option is closely related to that of a call option. See put-call parity.

Like in the case of share trading, buyers and sellers of options do not usually interact directly with each other; the options exchange is intermediary. The seller has to supply a guarantee to the options exchange that he can fulfill his obligation if the buyer chooses to execute his option.

Compare also

Stock option
Call option

Frequency of Internet Keywords: Put Option

Modern Translation: Put Option

Language		Translations for "put option"; alternative meanings/domain in parentheses.
Danish		salgsoption (put). (various references)

Dutch		premieaffaire te ontvangen (seller's option), baissepremie (put). (various references)

Finnish		myyntioptio (seller's option). (various references)

French		put (put), prime simple � la baisse (put), option de vente (put), marché � prime pour livrer. (various references)

German		put (put), Verkaufsoption (put), Rückprämiengeschäft (seller's option), Rückprämie (put). (various references)

Greek		δικαίωμα πώλησης (put). (various references)

Italian		put (put), opzione di vendita (put, seller's option). (various references)

Pig Latin		utpay optionay

Portuguese		opção de venda (seller's option). (various references)

Spanish		opción de venta (put). (various references)

Swedish		säljoption (seller's option). (various references)
Source: compiled by the editor from various translation references.

Anagrams: Put Option

Scrabble® Enable2K-Verified Anagrams
	Words within the letters "i-n-o-o-p-p-t-t-u"
	-1 letter: outpoint.
	-3 letters: option, potion, tiptop.
	-4 letters: input, pinot, pinto, pinup, piton, point, potto, punto, puton, putti, putto, topoi.
	-5 letters: into, onto, otto, pint, pion, poon, poop, pout, punt, putt, tint, toit, toon, toot, topi, tout, unit, unto, upon.
	Words containing the letters "i-n-o-o-p-p-t-t-u"
	+2 letters: opportunist, opportunity.
	+3 letters: opportunists.
	+4 letters: opportunistic, opportunities, outpopulating.
	+5 letters: postamputation, postproduction.
Source: compiled by the editor from various references; see credits. SCRABBLE® is a registered trademark. All intellectual property rights in and to the game are owned in the U.S.A and Canada by Hasbro Inc., and throughout the rest of the world by J.W. Spear & Sons Limited of Maidenhead, Berkshire, England, a subsidiary of Mattel Inc. Mattel and Spear are not affiliated with Hasbro.

Expression	Frequency per Day
put option	57
selling put option	4
Source: compiled by the editor from various references; see credits.

Put Option

Definition: Put Option

Put Option

Noun

Specialty Definition: Put Option

Agriculture

Finance

Specialty Definition: Put option

Example of a put option on a stock

Compare also

Synonym: Put Option

Crosswords: Put Option

Frequency of Internet Keywords: Put Option

put option

selling put option

Modern Translation: Put Option

Danish

Dutch

Finnish

French

German

Greek

Italian

Pig Latin

Portuguese

Spanish

Swedish

Anagrams: Put Option

Scrabble® Enable2K-Verified Anagrams

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