Also known as: put options · put-option · put
Written by attorneys · grounded in primary & secondary sources — see below
A contractual right granting the holder the power to sell an underlying asset to the counterparty at a fixed strike price on or before a designated expiration date. The writer of the option must purchase the asset if the holder exercises the right. Value increases as the market price of the asset falls below the strike price.
Pierce Patterson purchases a put option on Prism Analytics shares with a strike price of $50. When the market price drops to $40, he exercises the option to sell the shares to the writer at $50. The writer must buy the shares at the strike price.
Paul Peterson holds a put option on Pacific Bank bonds. After interest rates rise and bond prices fall below the strike, he puts the bonds to the counterparty. The counterparty buys the bonds at the agreed strike price.
Pilar Pena buys a put option on an S&P index. When the index declines below the strike before expiration, she exercises and receives cash settlement from the writer equal to the difference. The writer pays the cash amount due.
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Paige Porter acquires a put option on wheat futures. As spot prices drop below the strike, she exercises and requires the writer to purchase the wheat at the strike price. Delivery occurs on the contract terms.
Peter Park owns a put option on Patriot Insurance stock. The price falls sharply before expiration. He exercises and sells the shares to the writer at the higher strike price, locking in the gain.
Pamela Phillips holds a put option on commercial real estate. Market values decline below the strike. She exercises and requires the counterparty to purchase the property at the strike price on the closing date.
A put option grants the holder the right to sell the underlying asset at the strike price. A call option grants the right to buy the asset at the strike price. The put writer must stand ready to purchase the asset if exercised.
Intrinsic value arises once the market price of the underlying asset falls below the strike price. The holder can then sell at the higher strike and capture the difference. Time value may still exist before expiration even if out of the money.
The writer of the put option must buy the asset at the strike price if the holder exercises the right. The holder has no obligation to exercise and may let the option expire.
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