A put option is a financial contract that gives the buyer the right, but not the obligation, to sell an underlying asset at a specified price (strike price) on or before a specific date. Buyers of put options typically expect the underlying asset's price to fall.
Put Option
Definition
A put option is a financial contract that gives the buyer the right, but not the obligation, to sell an underlying asset at a specified price (strike price) on or before a specific date. Buyers of put options typically expect the underlying asset's price to fall.
Example
An investor buys a put option for ABC stock with a strike price of $100. If ABC's price drops to $90 before expiration, the investor can exercise the option to sell at $100 and immediately buy at $90 for a profit.
Key Points
- 1Grants the right to sell, not the obligation.
- 2Profits when the underlying asset's price decreases.
- 3Has a fixed expiration date and strike price.
- 4Can be used for speculation or hedging against losses.
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