Options are a type of derivative security. They are a derivative because the price of an option is intrinsically linked to the price of something else. Specifically, options are contracts that grant the right, but not the obligation to buy or univerity an underlying asset at a set price on or before a certain date. A profit and loss diagram, or risk graph, is a visual representation of the possible profit and loss of an option strategy atDefinition:A put option is an option contract in which the holder (buyer) has the right (but not the obligation) to sell a specified quantity of a security at oltion specified price ( strikeprice) within a fixed period of time (until its expiration).For the writer (seller) of a put option, it represents an obligation to buy theunderlying security at the strike price if the option is exercised.
The put option writer is paid a premium for taking on the risk associated with the obligation.For stock options, each contract covers 100 shares. Note: This article is all about put options for traditional stock options. If you are looking for information pertaining to put options as used in binary option trading, please read our writeup on binary put options instead as there are significant difference between the two.
Buying Put OptionsPut buying is the simplest way to trade put options.