Definition of selling a put option
Put Option Definition & Example | Investing Answers
A put option is an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time.
This is the opposite of a call optionwhich gives the holder the right to buy shares.
How To Sell Put Options To Benefit In Any Market
Conversely, a put option loses its value as the underlying stock increases and the time to expiration approaches. The value of a put option decreases due to time decay, because the probability of the stock falling below the specified strike price decreases. When an option loses its time value, the intrinsic value is left over, which is equivalent to the difference between the strike price less the stock price.
Out-of-the-money and at-the-money put options have an intrinsic value of zero because there would be no benefit of exercising the option. Investors could sell short the forexegyetem forum at the current market price, rather than exercising an out-of-the-money put option at an undesirable strike price, which would produce losses.
Note that the maximum amount of potential profit in this example ignores the premium paid to obtain the put option. Contrary to a long put option, definition of selling a put option short put option obligates an investor to take delivery, or purchase shares, of the underlying stock. Dictionary Term Of The Day.
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Short Put Definition | Investopedia
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