Put Option

Discipline: Economics

A Put Option is the right to sell the shares of a particular stock at a preset price.

Investors purchase put options when they believe that the market price of a particular stock will decrease. If the price of the stock in question goes below the preset price that the put option allows purchase (plus the cost of option), the investors then exercise the option - just so she can buy it back with the currently lower market price and make profit.

If the price of the stock in question does not decrease as expected, the investor then loses all the money she spent on purchasing the option.

Also see: call option

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