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Put Options
A
put option is a type of option
contract between
two parties (a 'put') that gives the buyer the right to sell
an underlying security, normally
100 shares of stock at a predetermined, fixed price - known as
the strike price (exercise price). For which the buyer pays a premium.
There is an obligation for the seller (called the 'writer') of the put option; to buy the underlying security at the strike price, on or before the expiration, if he or she is assigned (exercised against).
The obligation with the Put is unlike with the futures contract where
both the buyer and seller are obligated to exercise the contract.
An uncovered put option, or a naked put, is a
short position where the writer has not deposited in a cash account an amount
equal to the exercise value, or the writer does not have a short postion
that correlates in the underlying position.
The call option varies
in its basic makeup with the put. See also puts
and calls considered together.
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