Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (November 2015) ( Learn how and when to remove this template message)In finance, a put or put option is a stock market device which gives the owner of a put the right, but not the obligation, to sell an asset (the underlying), at a specified price (the strike), by a predetermined date (the expiry or maturity) to a given party (the seller of the put).
As investors become more educated and savvy, they look for new and exciting ways to trade the markets. This often leads investors to seek out the concept of selling naked options.What does it mean to trade options naked. For example, if one is writing naked calls, they are selling calls without owning the underlying stock. A put is an option contract that gives the owner the right, but not the obligation, to sell 100 shares of the underlying stock at a specified price (which is known as the strike price of the put) at any time before a specific time (the expiration date of the put).Bearish traders would use puts because the value of the put should go up if the price of the underlying stock goes down.
This characteristic of the put option provides an opportunity to protect equity positions against capital loss and also allows us to take bearish positions in the market without taking on the trading risk of selling stock short. Using Put Options To Protect StockBecause put options vest the buyer with the right to sell stock at a pre-determined price, these option contracts are frequently used to protected stock holdings from losses in the event of a market decline.