A put option is a security that you buy when you think the price of a stock or index is going to go down. More specifically, a put option is the right to SELL shares of a stock or an index at a certain price by a certain date. That "certain price" is known as the strike price, and that "certain date" is known as the expiry or expiration date. A put option, like a call option , is defined by the following 4 characteristics:. It is called an "put" because it gives you the right to "put", or sell, the stock or index to someone else.
What Is a Put Option? Examples and How to Trade Them in 2019
As a quick summary, options are financial derivatives that give their holders the right to buy or sell a specific asset by a specific time at a given price strike price. There are two types of options: calls and puts. Call options refer to options that enable the option holder to buy an asset whereas put options enable the holder to sell an asset. Speculation , by definition, requires a trader to take a position in a market, betting that the price of a security or asset will increase or decrease. Speculators try to profit big, and one way to do this is by using derivatives that use large amounts of leverage.
When the market is volatile, as it has been recently, investors may need to re-evaluate their strategies when picking investments. While buying or holding long stock positions in the market can potentially lead to long-term profits, options are a great way to control a large chunk of shares without having to put up the capital necessary to own shares of bigger stocks - and, can actually help hedge or protect your stock investments. In fact, having the option to sell shares at a set price, even if the market price drastically decreases, can be a huge relief to investors - not to mention a profit-generating opportunity.