Put

An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time. The buyer of a put option estimates that the underlying asset will drop below the exercise price before the expiration date.

The possible payoff for a holder of a put option contract is illustrated by the following diagram:

Put

When an investor purchases a put, he or she expects the underlying asset will decline in price. The investor will then profit by either selling the put options at a profit, or by exercising the option. If an investor writes a put contract, he or she is estimating the stock will not decline below the exercise price, and will not fall significantly below the exercise price.

Consider if an investor purchased one put option contract for 100 shares of ABC Co. for $1, or $100 ($1*100). The exercise price of the shares is $10 and the current ABC share price is $12. This contract has given the investor the right, but not the obligation, to sell shares of ABC at $10.

If ABC shares drop to $8, the investor's put option is in-the-money and he can close his option position by selling the contract on the open market. On the other hand, he can purchase 100 shares of ABC at the existing market price of $8, then exercise his contract to sell the shares for $10. Excluding commissions, the total profit for this position would be $100 [100*($10 - $8 - $1)]. If the investor already owned 100 shares of ABC, this is called a "married put" position and serves as a hedge against a decline in share price.


Investment dictionary. . 2012.

Synonyms:

Look at other dictionaries:

  • put — put …   Dictionnaire des rimes

  • put — W1S1 [put] v past tense and past participle put present participle putting [T] ▬▬▬▬▬▬▬ 1¦(move to place)¦ 2¦(change somebody s situation/feelings)¦ 3¦(write/print something)¦ 4¦(express)¦ 5 put a stop/an end to something 6 put something into… …   Dictionary of contemporary English

  • put — [ put ] (past tense and past participle put) verb transitive *** ▸ 1 move something to position ▸ 2 cause to be in situation ▸ 3 write/print something ▸ 4 make someone go to place ▸ 5 give position on list ▸ 6 build/place somewhere ▸ 7 express in …   Usage of the words and phrases in modern English

  • Put — Put, v. t. [imp. & p. p. {Put}; p. pr. & vb. n. {Putting}.] [AS. potian to thrust: cf. Dan. putte to put, to put into, Fries. putje; perh. akin to W. pwtio to butt, poke, thrust; cf. also Gael. put to push, thrust, and E. potter, v. i.] 1. To… …   The Collaborative International Dictionary of English

  • put — [poot] vt. put, putting [ME putten < or akin to OE potian, to push: mod. senses prob. < Scand, as in Dan putte, Swed dial. putta, to put away, push, akin to OE pyttan, to sting, goad] 1. a) to drive or send by a blow, shot, or thrust [to… …   English World dictionary

  • put — ► VERB (putting; past and past part. put) 1) move to or place in a particular position. 2) bring into a particular state or condition: she tried to put me at ease. 3) (put on/on to) cause to carry or be subject to. 4) assign a value, figure, or… …   English terms dictionary

  • put — pȗt [b] (I)[/b] m <G púta, I pútem/pútom, N mn pútevi/pútovi/púti knjiš., G pútēvā/pútōvā> DEFINICIJA 1. a. utaban i utrt dio zemlje koji služi za prolaženje i kretanje [seoski put; kolni put] b. prostor po kome se ili kroz koji se odvija… …   Hrvatski jezični portal

  • Put — (put; often p[u^]t in def. 3), v. i. 1. To go or move; as, when the air first puts up. [Obs.] Bacon. [1913 Webster] 2. To steer; to direct one s course; to go. [1913 Webster] His fury thus appeased, he puts to land. Dryden. [1913 Webster] 3. To… …   The Collaborative International Dictionary of English

  • puţ — PUŢ, puţuri, s.n. 1. Groapă cilindrică sau pătrată, adesea cu pereţii pietruiţi sau cu ghizduri împrejur, săpată în pământ până la nivelul unui strat de apă şi care serveşte la alimentarea cu apă potabilă; fântână. ♢ Puţ absorbant = groapă făcută …   Dicționar Român

  • put — late O.E. putung instigation, urging, lit. putting; also pytan put out, thrust out (of eyes), probably from Germanic stem that also produced Dan. putte to put, Swed. dialectal putta. Meaning act of casting a heavy stone overhead (as a trial of… …   Etymology dictionary

  • put at — ˈput at [transitive] [present tense I/you/we/they put at he/she/it puts at present participle putting at past tense put at past participle …   Useful english dictionary

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