Buyer of a put option
This page was last edited on 18 Januaryat This article needs additional citations for verification. That is, the buyer wants the value of the put option to increase by a decline in buyer of a put option price of the underlying asset below the strike price. This strategy is best used by investors who want to accumulate a position in the underlying stock, but only if the price is low enough. If the buyer does not exercise his option, the writer's profit is the premium.
In order to protect the put buyer from default, the put writer is required to post margin. 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 advantage of buying a put over short selling the asset is that the option owner's risk of buyer of a put option is limited to the premium paid for it, whereas the asset short seller's risk of loss is unlimited its buyer of a put option can rise greatly, in fact, in theory it can rise infinitely, and such a rise is the short seller's loss. A buyer thinks the price of a stock will decrease.
If the option is not exercised by maturity, it expires worthless. The writer seller of a put is long on the underlying asset and short on the put option itself. Articles needing additional references from November All articles needing additional references.
That is, the buyer wants the value of the put option to increase by a decline in the price of the underlying asset below the strike price. Energy derivative Freight derivative Inflation derivative Property derivative Weather derivative. If the stock price buyer of a put option collapses before the put position is closed, the put writer potentially can face catastrophic loss. Put options are most commonly used in the stock market to protect against the decline of the price of a stock below a specified price.
Another use is for buyer of a put option The buyer will not exercise the option at an allowable date if the price of the underlying is greater than K. That is, the buyer wants the value of the put option to increase by a decline in the price of the underlying asset below the strike price. Upon exercise, a put option is valued at K-S if it is " in-the-money ", otherwise its value is zero.