Sell put option contract
The put buyer either believes that the underlying asset's price will fall by the exercise date or hopes to protect a long position in sell put option contract. If the buyer fails to exercise the options, then the writer keeps the option premium as a "gift" for playing the game. This article needs additional citations for verification. The advantage of buying a put over sell put option contract selling the asset is that the option owner's risk of loss is limited to the premium paid for best way to learn trading options, whereas the asset short seller's risk of loss is unlimited its price can rise greatly, in fact, in theory it can rise infinitely, and such a rise is the short seller's loss. In the protective put strategy, the investor buys enough puts to cover his holdings of the underlying so that if a drastic downward movement of the underlying's price occurs, he has the sell put option contract to sell the holdings at the strike price.
The buyer will not exercise the option at an allowable date if the price of the underlying is greater than K. A European option can only be exercised at time T rather than any time until Sell put option contractand a Bermudan sell put option contract can be exercised only on specific dates listed in the terms of the contract. The put buyer either believes that the underlying asset's price will fall by the exercise date or hopes to protect a long position in it. He pays a premium which he will never get back, unless it is sold before it expires.
A European put option allows the holder to exercise the put option for a short period of time right before expiration, while an American put option allows exercise at any time before expiration. Unsourced material may be challenged and removed. That is, the seller wants the option to become worthless sell put option contract an increase in the price of the underlying asset above the strike price.
Another use is for speculation: The put buyer does not need to post margin because the buyer would not exercise the option sell put option contract it had a negative payoff. 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. The writer sells the put to collect the premium.
That allows the exerciser buyer to profit from the difference between the stock's market price and the option's strike price. A buyer thinks the price of a stock will decrease. Option pricing is a central problem of financial mathematics.