Details of Put Options

According to investopedia.com a put options is "an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time. The buyer of a put option estimates that the underlying asset will drop below the exercise price before the expiration date."

A put option is purchased when the buying trader expects the underlying price to lose some of its current dollar value. The buyer of the put option would acquire profits by selling the option or exercising it if the price of the underlying stock actually does fall. The opposite is the case for an individual who sells a put option.


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