Put Option
Candlefocus EditorPut options are the opposite of call options. Whereas a call option gives the buyer the right to purchase an asset, a put option gives the buyer the right to sell an asset. When a put option is exercised, the option buyer must sell the underlying asset at the strike price, regardless of its current market value. If the price of the underlying rises instead of falls, the option buyer will choose not to exercise their option.
The premium for a put option is influenced by several factors, including the price of the underlying asset, strike price, time decay, interest rates, and volatility. Put options become more valuable as the price of the underlying asset decreases, as volatility increases, and as interest rates decline. Conversely, put options depreciate in value as the underlying asset increases in price, as volatility decreases, as interest rates increase, and as the expiration date of the option nears.
Put options can be very useful for investors who believe that a stock, index, commodity, or currency will decrease in value. By purchasing put options, investors can benefit from a lower market price than if they simply sold their underlying assets short. The drawback to put options is that the option premium decreases as the underlying asset falls in price. Therefore, the investor will incur losses if the option remains unexercised.
Overall, put options are useful investment tools that can be used to capitalize on bearish markets. By investing in put options, investors can gain leverage and benefit from potential price declines in the underlying asset.