What is a Long Put?

May 19 22:22

An option is a contract that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specific time period.

A call option gives the right to buy the asset, while a put option gives the right to sellit.

Here's an example to illustrate a put option:

Suppose today someone offers you a deal allowing you to sell 100 shares of TUTU stock at $90 per share any time up to March 1 (three months from now).

In return, you need to pay $5 per share upfront.

If you ultimately decide not to sell the underlying shares, this $5 is non-refundable.

Believing that TUTU's stock might be overvalued and could drop to $70 or lower by then, you find this deal worthwhile and agree to pay the amount.

Thus, a put option contract is created.

Option Buyer (Option Holder):

You pay $500 ($5*100) to acquire the right to sell 100 shares of TUTU at 90 per share any day before or on March 1.

You may exercise this right or not, but the $500 you paid will not be refunded.

Option Seller (Option Writer):

The seller receives the $500 you paid and bears the corresponding obligation.

When you choose to exercise the option on any day before or on March 1, the seller must buy 100 shares of TUTU stock from you at $90 per share, with no right to refuse.

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This presentation is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. Read more

What is a Long Put?

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