Put Options

Put Options
A CALL makes money when the stock goes up, and a PUT makes money as the stock goes down. Put options are among the most basic types of options. Like other options, they aren’t an actual financial security but an option to buy or sell one. They are an agreement between the buyer and seller (also known as the writer) that allow the buyer to of the option to sell the underlying stock or commodity to the writer of the option. Although the buyer has the right to sell the options at or before a future date at a set price, the buyer has no obligation to do so and can walk away from the trade if he chooses to do so. If the put options are American options, the option can be exercised any day before or including the agreed upon date. If it is a European style option, the option can only be exercised on the agreed upon date and not before. Put options can represent one of many types of financial securities or assets such as stocks, oil or even interest rates. As the buyer of the put option you may think that the underlying security’s value is going to fall or you may be using it as a way of protecting a position you already hold in the position from any sudden price declines. When you buy a put option, all you risk is the premium that you paid and nothing more, unlike if you shorted the underlying asset, in which case you would have greater exposure to potential losses. Oexoptions.com can educate you on significant, different ways to use put options as part of a balanced portfolio.