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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.