The letter P stands for put option and E stands for European option.
Representation: The symbol for put option is PE.
Let us now understand some key terms relating to put options. Put option is a derivative contract between two parties wherein the buyer of the put option gets the right but not obligation to sell the underlying asset at a specific price on a specific date. Now, you would be in a better position to understand the official definition of put options. To learn about call options, watch the below video. In this article, we will focus on put options. The below table will help you remember the rights and obligations of call and put options. Whereas a put option gives you the right but not the obligation to sell. But the seller has an obligation.Ī call option gives you the right but not the obligation to buy the underlying asset. So, an options contract gives the buyer the right but not the obligation to either buy or sell the underlying asset at a specific price on a specific date. So, he is obligated to sell me the saree. This is because he has taken a premium from me. He has to sell me the saree if I demand to buy it. If I don’t buy this saree, my loss is the premium paid which is Rs 1,000.īut the seller does not have this freedom. So, I am not obligated or forced to buy the saree. But I can choose to not buy it if I find a better saree for a lower price. Now pay attention … I have the right to buy this saree.
Rs 1,000 is the premium I paid to reserve the right of purchase.
But he cannot sell this saree to anyone before three hours. If I don’t come back, he can keep the token. I tell him that I will come back in three hours to buy the saree. So, I pay the shopkeeper Rs 1,000 as a token to reserve this saree. But I don’t want to lose out on this saree either. But, before making such an expensive purchase, I want to explore other options. I go to buy a saree and shortlist one costing Rs 20,000. All you need to leverage this opportunity is an understanding of put options.īefore we understand the official definition of a put option, let us first understand what are options. Simple and easy.īut you will be surprised to know that you can make as much money when the stock prices fall. You buy a stock for Rs 100 and sell it for Rs 200, making Rs 100 as profit. Majority of investors believe that the only way to make money in the market is when the stock price increases. Quite naturally, a put option buyer will expect the share prices to decrease. A call option buyer expects the share price to increase. They represent two opposite views on the same stock. Call and Put Option are two sides of the same coin.