What Is A Put Option?

A put option is a type of financial derivative that gives the holder the right, but not the obligation, to sell an underlying asset at a predetermined price on or before a specified date. Put options are typically used as hedging instruments by investors who want to protect their portfolios from potential losses due to market volatility. They can also be used for speculation purposes in order to make profits if they expect prices of certain assets to fall.

Put options are bought and sold through exchanges like stocks and other derivatives. The buyer pays a premium for this right which is determined by factors such as current market conditions, time remaining until expiration, and strike price (the predetermined selling price). If the investor decides not to exercise his/her option then he/she will only lose out on the premium paid initially; however if exercised correctly it could result in significant gains depending on how far below market value the stock was sold at.

See also  Collateralized Debt Position (CDP)

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