Puts
A put is an options contract that gives the holder the right, but not the obligation, to sell a certain amount of an underlying asset at a predetermined price within a specified time frame. The seller of the put option is obligated to buy the underlying asset from the buyer at the predetermined price if the buyer exercises the option. Put options are used to hedge against market declines, to speculate on a decline in a security or index, or to generate income.
History of Puts
The concept of puts and calls dates back to the 17th century, when Dutch traders used options to hedge their investments in the tulip bulb market. The modern options market began in 1973 when the Chicago Board Options Exchange (CBOE) was established. The CBOE was the first exchange to offer standardized, exchange-traded options. Since then, options have become an important part of the financial markets, providing investors with a way to hedge their investments and speculate on the direction of the markets.
Comparison of Puts and Calls
| Puts | Calls |
|---|---|
| Right to sell | Right to buy |
| Decrease in value when underlying asset increases in value | Increase in value when underlying asset increases in value |
| Decrease in value when underlying asset decreases in value | Decrease in value when underlying asset decreases in value |
Summary
Puts are a type of options contract that give the holder the right, but not the obligation, to sell a certain amount of an underlying asset at a predetermined price within a specified time frame. Put options are used to hedge against market declines, to speculate on a decline in a security or index, or to generate income. For more information about puts, visit the websites of the Chicago Board Options Exchange (CBOE) or the Options Clearing Corporation (OCC).
See Also
- Calls
- Options
- Options Clearing Corporation (OCC)
- Chicago Board Options Exchange (CBOE)
- Strike Price
- Expiration Date
- Premium
- Hedging
- Speculation
- Income Generation
