PUT OPTION Meaning and
Definition
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A put option is a financial contract that gives the buyer the right, but not the obligation, to sell a particular asset (usually a stock) at a specified price (known as the strike price) within a predetermined period of time. It is a form of derivative instrument commonly used in options trading.
The purchaser of a put option is essentially betting that the price of the underlying asset will decrease in value by the expiration date. If the asset's price falls below the strike price, the buyer can exercise the put option and sell the asset at a higher price than the market value, thereby profiting from the decline. However, if the asset's price remains above the strike price, the buyer is not obligated to exercise the option and may let it expire worthless.
Put options are often used as a hedging strategy to protect against potential losses in the underlying asset. They enable investors to limit their downside risk by providing a safeguard against adverse price movements. As an example, if an investor holds a stock that they believe could decline in value, they can purchase a put option to sell the stock at a predetermined price, mitigating potential losses.
In summary, a put option is a financial instrument that grants the holder the right to sell an asset at a specified price within a predetermined timeframe, primarily used for hedging against potential losses in the market.
Common Misspellings for PUT OPTION
- out option
- lut option
- -ut option
- 0ut option
- pyt option
- pht option
- pjt option
- pit option
- p8t option
- p7t option
- pur option
- puf option
- pug option
- puy option
- pu6 option
- pu5 option
- put iption
- put kption
- put lption
Etymology of PUT OPTION
The word "put" in the context of a financial option comes from the verb "to put", which means to place or to set. The term "put option" originated in the early 20th century and is related to the concept of a contract that gives the owner the right, but not the obligation, to sell an asset at a specified price within a predetermined time period. The word "option" refers to the choice or opportunity to engage in a transaction, in this case, the sale of the asset.
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