Short put option example essay


Option short example essay put


This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (November 2015) ( Learn how and when to remove this template message)In finance, a put or put option is a stock market device which gives the owner of a put the right, but not the obligation, to sell an asset (the underlying), at a specified price (the strike), by a predetermined date (the expiry or maturity) to a given party (the seller of the put).

More specifically, a put option is the right to SELL 100 shares of a stock or an index at a certain price by a certain date. Put writing is an essential part of options strategies. Selling a put is a strategy where an investor writes a put contract, and by selling the contract to the put buyer, the investor has sold the right to sell shares at a specific price. xhort Thus, the put buyer now has the right to sell shares to the put seller.Selling a put is advantageous to an investor, because he or opiton will receive the premium in exchange for committing to buy shares exampke the strike price if the contract is exercised.

Options contracts are essentially the price probabilities of future events. The more likely something is to occur, the more expensive an option would be that profits from that event. He would have no obligation to buy the stock, only the right to do so until the expiry date. If the stock price increases over the exercise price by more than the premium paid, he will pit. If the stock price decreases, he will let the call contract expire worthless, and only lose the amount of the premium.

A trader might buy the option instead of shares, because for the same amount of money, he can obtain a larger number of options than shares. Short put option example essay the stock rises, he will thus realize a larger gain than if he had purchased shares. This is an example of the principle of leverage.




Option short example essay put

Option short example essay put

Short put option example essay



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