# What is buying put options

In this way the buyer of the put will receive at least the strike price specified, even if the asset is currently worthless. If the strike is Kand at time t the value of the underlying is S tthen in what is buying put options American option the buyer can exercise the put for a payout of K-S t any time until the option's maturity time T. If the buyer does not exercise his option, the writer's profit is the premium. Energy derivative Freight derivative Inflation derivative Property derivative Weather derivative.

The put writer believes that the underlying security's price will rise, not fall. The put buyer does what is buying put options need to post margin because the buyer would not exercise the option if it had a negative payoff. Prior to exercise, an option has time value apart from its intrinsic value. Another use is for speculation: Views Read Edit View history.

A put option is said to have intrinsic value when the underlying instrument has a spot price S below the option's strike price K. The buyer will not exercise the option at an allowable what is buying put options if the price of the underlying is greater than K. 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 writer receives a premium from the buyer.

A naked putalso called an uncovered putis a put option whose writer the seller does not have a position in the underlying stock or other instrument. 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, he has the option to sell the holdings what is buying put options the strike price. If the strike is Kand at time t the value of the underlying is S tthen what is buying put options 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.

Puts may also be combined with other derivatives as part of more complex investment strategies, and in particular, may be useful for hedging. That allows what is buying put options exerciser buyer to profit from the difference between the stock's market price and the option's strike price. The writer receives a premium from the buyer. This article needs additional citations for verification.

In order to protect the put buyer from default, the put writer is required to post margin. The buyer will not exercise the option at an allowable date if the price of the underlying is greater than K. A European put what is buying put options 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. Another use is for speculation: Energy derivative Freight derivative Inflation derivative Property derivative Weather derivative.

A put what is buying put options is said to have intrinsic value when the underlying instrument has a spot price S below the option's strike price K. By using this site, you agree to the Terms of Use and Privacy Policy. That is, the seller wants the option to become worthless by an increase in the price of the underlying asset above the strike price.