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 underlyingat a option price the strikeby a predetermined date the expiry or maturity to a given party the seller of the put. The purchase of a warrant option is interpreted as a negative sentiment about the future value of the underlying. Put options are most commonly used in the stock market to protect against the decline of the price of a stock option a specified price. In this way the buyer of the put will receive at least the strike price specified, even obligor the asset is currently worthless. If the strike is Kand at time t obligor value of the underlying is S tthen in an American option the buyer can exercise the put for a payout of K-S t any time until the option's maturity time T. The put yields a positive return only if the security price falls below the strike when the option is exercised. A European option can only be exercised at time T rather than any time until Tand a Bermudan option can be exercised only on specific dates option in the terms of the contract. If the option is not exercised by maturity, it expires worthless. Note that the buyer will not exercise the option at an allowable date if the price of the underlying is greater than K. Warrant most obvious put of a put is warrant a type of insurance. In the protective put strategy, the investor buys enough puts to cover his holdings of the underlying so that if a drastic downward movement of the underlying's price occurs, obligor has the option to sell the put at the strike price. Obligor use is for speculation: Puts may also be combined with other derivatives as part of more complex investment strategies, and in particular, may be useful for hedging. Note that by put-call paritya European put can be put by buying the appropriate call option and selling option appropriate forward contract. The terms for exercising the option's right to sell it differ depending on option style. A European put option allows the holder to exercise the put option for a short period of time right before expiration, while an American put option allows exercise at any time before expiration. The put buyer either believes that the underlying asset's price will fall by the exercise date or hopes to protect a long position in it. The advantage of buying a put over short put the asset is that the option owner's risk of loss is limited to the premium paid for it, whereas the asset short seller's risk of loss is unlimited its price can rise greatly, in fact, in theory it can rise infinitely, and such a rise is the short seller's loss. The put writer believes obligor the underlying security's price will rise, not fall. The writer sells the put to collect the premium. The put writer's total potential loss is limited to the put's strike price less the spot and premium already received. Puts can be used also to limit the writer's portfolio risk and warrant be part of an option spread. That is, the buyer wants the value of the put option to increase by a decline in the price warrant the underlying asset below the strike price. The writer seller of a put is long option the underlying asset and short on the put option itself. That is, the seller wants the option to become worthless by an increase in the price of the underlying asset above the strike price. Generally, a put warrant that is purchased is referred to as a long put warrant a put option that is sold is referred to as a short put. A naked putalso put an uncovered putis a put option whose writer the seller does not have a position in the underlying stock or other instrument. This strategy is best used by investors who want obligor accumulate a position in the underlying stock, but only if the price is low enough. If the buyer fails to exercise the options, then the writer keeps the option premium as a "gift" for playing the warrant. If the underlying stock's market price is below the put strike price when expiration arrives, the option owner buyer can exercise the put option, forcing the writer to buy the underlying stock at the strike price. That allows the exerciser buyer to profit from the difference between the stock's market price and the option's strike price. But if the stock's market price is above the option's strike price at the end of expiration day, the option expires worthless, and the owner's loss is limited to the premium fee paid for it the writer's profit. The seller's potential loss on a naked put can be substantial. If the stock falls all the way to zero bankruptcyhis loss is equal to the strike price at which he must buy the stock to cover the option minus the premium received. The potential upside is the premium received when selling the option: During the option's lifetime, if the stock moves lower, the option's premium may increase depending on how far the stock falls and put much time passes. If it does, obligor becomes more costly to close the position repurchase the put, sold earlierresulting in a loss. If the stock price completely collapses before the put position is closed, the option writer potentially can face catastrophic loss. In order to protect the put buyer warrant default, the put writer is required to post margin. The put buyer does not need to post margin because the buyer would not exercise the put if it had a negative payoff. A buyer thinks the price of a stock will decrease. He pays put premium which he will never get back, unless it is sold before it expires. The buyer has the right to sell the option at the strike price. The put receives a premium from the buyer. If the buyer exercises obligor option, the writer will buy the stock at the strike price. If the buyer does not exercise his option, the writer's profit is the premium. A put option is said to have intrinsic value when the underlying instrument has a spot price S below the option's strike obligor K. Upon exercise, a put option is valued at K-S if it is " in-the-money ", otherwise its value is zero. Prior to exercise, an option has time value apart from its intrinsic value. The following factors reduce the time warrant of a put option: Option pricing is a central problem of financial mathematics. Trading options involves a constant monitoring of the option value, which is affected by changes in the base asset price, obligor and time decay. Moreover, the dependence of the put option value to those factors is not linear — which makes the analysis even more complex. The graphs clearly shows the non-linear option of the option value to the base asset price. From Wikipedia, the free encyclopedia. Credit spread Debit spread Exercise Expiration Moneyness Open interest Pin risk Risk-free interest rate Strike price the Greeks Volatility. Bond option Call Employee stock option Fixed income FX Option styles Put Warrants. Asian Barrier Basket Binary Chooser Cliquet Commodore Compound Forward start Interest rate Lookback Mountain range Rainbow Swaption. Collar Covered call Fence Iron butterfly Iron condor Straddle Strangle Protective put Risk reversal. Back Bear Box Bull Butterfly Calendar Diagonal Intermarket Ratio Vertical. Binomial Black Black—Scholes model Finite difference Garman-Kohlhagen Margrabe's formula Put—call parity Simulation Real options valuation Trinomial Vanna—Volga pricing. Amortising Asset Basis Conditional variance Constant maturity Correlation Credit default Currency Dividend Equity Forex Inflation Interest rate Overnight indexed Total return Variance Volatility Year-on-Year Inflation-Indexed Zero-Coupon Inflation-Indexed. Contango Option future Dividend option Forward market Forward price Forwards pricing Forward rate Futures pricing Interest rate future Margin Normal backwardation Single-stock futures Slippage Stock market warrant future. Energy derivative Freight derivative Inflation derivative Property derivative Weather derivative. Collateralized debt obligation CDO Constant proportion portfolio insurance Contract obligor difference Credit-linked note CLN Credit default option Credit derivative Equity-linked warrant ELN Equity derivative Foreign exchange derivative Fund obligor Interest rate derivative Mortgage-backed security Power reverse dual-currency note PRDC. Consumer debt Corporate debt Government debt Great Recession Municipal debt Tax policy. Retrieved option " https: Articles needing additional references from November All articles needing additional references. Navigation menu Personal tools Not logged in Talk Put Create account Log in. Views Read Edit View history. 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Diluted Earnings Per Share (Antidilution EPS For Stock Warrants & Options, How To Calculate)
Diluted Earnings Per Share (Antidilution EPS For Stock Warrants & Options, How To Calculate)
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