ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -By buying a put, you usually expect the stock price to fall before the option expires. It can be useful to think of buying puts as a form of insurance against a stock decline. If it does fall below the strike price, you’ll earn money from the “insurance.”

Detailed explanation-2: -When a share’s price decreases in value, that change in value is not redistributed among any parties – the value of the company simply shrinks. The stock market is governed by the forces of supply and demand.

Detailed explanation-3: -Buying a put option gives you the right to sell a stock at a certain price (known as the strike price) any time before a certain date. This means you can require whoever sold you the put option (known as the writer) to pay you the strike price for the stock at any point before the time expires.

Detailed explanation-4: -A put option is a contract that gives its holder the right to sell a number of equity shares at the strike price, before the option’s expiry. If an investor owns shares of a stock and owns a put option, the option is exercised when the stock price falls below the strike price.