ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A put option is the right to sell a security at a specific price until a certain date. It gives you the option to “put the security down.” The right to sell a security is based on a contract. The securities are usually stocks but can also be commodities futures or currencies.

Detailed explanation-2: -A put option (or “put”) is a contract giving the option buyer the right, but not the obligation, to sell-or sell short-a specified amount of an underlying security at a predetermined price within a specified time frame.

Detailed explanation-3: -Selling a put option allows you to collect a premium from the put buyer. Regardless of what happens later on in the trade, as the put seller, you always get to keep the premium that is paid up front.

Detailed explanation-4: -Investors should only sell put options if they’re comfortable owning the underlying security at the predetermined price, because you’re assuming an obligation to buy if the counterparty chooses to exercise the option.

Detailed explanation-5: -When you buy a put option, you’re placing a bet that the value of the underlying stock will decrease in value over the course of the contract. When you sell a put option, you’re placing a bet that the value of the underlying stock will increase or stay the same value over the course of the contract.