PUT OPTIONS
Put options are brought to you bt the bulls and the bears
beta  under construction
A put or put option is a contract between two parties to exchange an asset, the underlying, for a specified
amount of cash, the strike, by a predetermined future date, the expiry or maturity. One party, the buyer of the
put, has the right, but not an obligation, to sell the asset at the strike price by the future date, while the
other party, the seller, has the obligation to buy the asset at the strike price if the buyer exercises the
option.
If the strike is K and maturity time is T, if the buyer exercises the put at a time t, the buyer can expect to
receive a payout of KS(t), if the price of the underlying S(t) at that time is less than K. The exercise t must
occur by time T; precisely what exact times are allowed is specified by the type of put option. An American option
can be exercised at any time before or equal to T; a European option can be exercised only at time T; 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. (Note that the buyer will not exercise the option at an allowable date if the
price of the underlying is greater than K.)
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 their holdings of the underlying so that if a drastic downward movement of the underlying's
price occurs, they have 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 without trading in it directly.
Puts may also be combined with other derivatives as part of more complex investment strategies, and in
particular, may be useful for hedging. Note that by putcall parity, a European put can be replaced by buying the
appropriate call option and selling an appropriate forward contract.
