Definitions for put option

This page provides all possible meanings and translations of the word put option

Princeton's WordNet

  1. put option(noun)

    an option to sell

  2. put option, put(noun)

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

Freebase

  1. Put option

    A put or put option is a contract between two parties to exchange an asset, at a specified price, by a predetermined date. One party, the buyer of the put, has the right, but not an obligation, to re-sell the asset at the strike price by the future date, while the other party, the seller of the put, has the obligation to repurchase the asset at the strike price if the buyer exercises the option. If the strike is K, and at time t the value of the underlying is S, then in an American option the buyer can exercise the put for a payout of K-S up until the option's maturity time T. The put yields a positive return only if the spot price falls below the strike when the option is exercised. A European option can only be exercised at time T rather than any time up until T, and a Bermudan option can be exercised only on specific dates listed in the terms of the contract. If the option is not exercised by maturity, it expires worthless. The most obvious use of a put is as a type of insurance. 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 occurs, he has the option to sell the holdings at the strike price. Another use is for speculation: an investor can take a short position in the underlying stock without trading in it directly.

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