put option
Definition
Noun: 1. A financial contract granting the right, but not the obligation, to sell a specific asset at a predetermined price on or before a specified date. This is the primary financial meaning. The buyer of a put option pays a premium for this right, typically hoping the asset's market price will fall below the predetermined "strike" price. 2. The option or right to sell. In a broader, non-financial context, it can refer more generally to having the choice or opportunity to sell something.
Usage Examples
- Noun (Financial):
- He bought a put option on the company's stock to hedge against a potential decline in its value.
- The investor exercised her put option when the market price fell sharply below the strike price.
- Noun (General):
- The contract gives the author a put option, allowing her to require the publisher to buy back the rights after five years.
Advanced Usage
- "To be long a put option": To be the buyer or holder of a put option, benefiting if the asset's price decreases.
- The fund is long put options on the index as a form of insurance.
- "To be short a put option": To be the seller or writer of a put option, obligating oneself to buy the asset if the buyer exercises the option. The seller profits from the premium if the price stays above the strike price.
- By shorting put options, the trader collects premium income but takes on significant risk.
Variants and Related Words
- Put (n., informal): A common shortened form of "put option" in financial contexts.
- He bought puts on the tech sector.
- Call Option (n.): The opposite financial contract, granting the right to an asset at a set price.
- Option Premium (n.): The price paid by the buyer to the seller to acquire the option contract.
- Strike Price (n.): The predetermined price at which the asset can be sold (for a put) or bought (for a call).
Synonyms
- Sell option (less common)
- Right to sell
Related Phrases
- Protective put: An investment strategy involving buying a put option to hedge against a decline in an asset you already own.
- She used a protective put to limit downside risk on her stock portfolio.
- Put-call parity: A financial theory defining the relationship between the prices of put options, call options, and the underlying asset.
Noun
-
the option to sell a given stock (or stock index or commodity future) at a given price before a given date
-
an option to sell
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