In the context of options trading, what is a PUT option?

In the context of options trading, what is a PUT option?

• A. A right to buy a security at a specified price
• B. A right to sell a security at a specified price
• C. A bond with variable interest rates
• D. A contractual agreement between two parties

Answer: (B)

A PUT option is defined as a right to sell a security at a specified price, known as the strike price, within a certain timeframe. This means that if an investor purchases a put option, they have the right, but not the obligation, to sell a specified amount of the underlying asset at the predetermined price before the option expires. Investors typically utilize put options as a form of insurance against declines in the price of the underlying security, allowing them to potentially limit losses or speculate on price decreases. This understanding is crucial for investors, as it highlights the protective aspect of put options. While the ability to sell an asset can be valuable, particularly during bearish market conditions, it also emphasizes the importance of market timing and strategic planning in options trading.

A PUT option is defined as a right to sell a security at a specified price, known as the strike price, within a certain timeframe. This means that if an investor purchases a put option, they have the right, but not the obligation, to sell a specified amount of the underlying asset at the predetermined price before the option expires. Investors typically utilize put options as a form of insurance against declines in the price of the underlying security, allowing them to potentially limit losses or speculate on price decreases.

This understanding is crucial for investors, as it highlights the protective aspect of put options. While the ability to sell an asset can be valuable, particularly during bearish market conditions, it also emphasizes the importance of market timing and strategic planning in options trading.