Difference between revisions of "Put options"
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(Replaced content with "Put options Category:finance Category:M13 Category:Term") Tag: Replaced |
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| − | + | A put option gives the buyer of the option the right to sell the underlying asset at a fixed price at any time prior to the expiration date | |
| + | of the option. The buyer pays a price for this right. | ||
| + | |||
| + | At expiration, | ||
| + | * If the value of the underlying asset (S) < Strike Price(K) | ||
| + | ** -> Buyer makes the difference: K-S | ||
| + | * If the value of the underlying asset (S) > Strike Price (K) | ||
| + | ** -> Buyer does not exercise | ||
| + | |||
| + | More generally, | ||
| + | * The value of a put decreases as the value of the underlying asset increases | ||
| + | * The value of a put increases as the value of the underlying asset decreases | ||
| + | |||
| + | A [[Pay-off Diagram|Pay-off Diagram]] for a '''buyer''' of put option looks like this: you start out with a loss and gain profit if the actual share price becomes lower than the strikeprice. Buying a put option buys you protection against lower stock prices. | ||
| + | |||
| + | <html> | ||
| + | <div id="jxgbox3" class="jxgbox" style="height:300px; width:400px;"></div> | ||
| + | </html>javascript:; | ||
| + | |||
| + | <script> | ||
| + | var board = JXG.JSXGraph.initBoard('jxgbox3', {boundingbox: [-40, 150, 300, -150], keepaspectratio:true, axis:true}); | ||
| + | |||
| + | var strikepriceslider = board.create('slider', [[0,0],[300,0], [0.0,100, 300]], {name:'strikeprice'}, {withLabel: false}); | ||
| + | var putpriceslider = board.create('slider', [[0,0],[0,-300], [0.0,-100, -300]], {name:'callprice write'}, {withLabel: false}); | ||
| + | |||
| + | var strikepriceline= board.create('line', [[function(){return strikepriceslider.X()}, function(){return -150}],[function(){return strikepriceslider.X()},function (){return 200}]],{'strokeColor':'red', 'dash':'true'}); | ||
| + | |||
| + | var writingputoptionarrow1 = board.create('arrow', [[function(){return strikepriceslider.X()+200}, function(){return putpriceslider.Y()}],[function(){return strikepriceslider.X()},function (){return putpriceslider.Y()}]],{'strokeColor':'yellow'}); | ||
| + | var writingoptionarrow2 = board.create('arrow', [[function(){return strikepriceslider.X()}, function(){return putpriceslider.Y()}],[function(){return strikepriceslider.X()-200},function (){return putpriceslider.Y()+200}]],{'strokeColor':'yellow'}); | ||
| + | |||
| + | </script> | ||
| + | |||
| + | A [[Pay-off Diagram]] for a ''seller'' of put option ('writing' a put') looks like this. In the interactive diagram below, the purple line represents the put for the seller: | ||
| + | |||
| + | <html> | ||
| + | <div id="jxgbox4" class="jxgbox" style="height:300px; width:400px;"></div> | ||
| + | </html> | ||
| + | |||
| + | <html> | ||
| + | <script type="text/javascript"charset="UTF-8"src="https://cdn.jsdelivr.net/npm/jsxgraph@1.1.0/distrib/jsxgraphcore.js"> | ||
| + | </script> | ||
| + | <link rel="stylesheet"type="text/css"href="https://cdn.jsdelivr.net/npm/jsxgraph@1.1.0/distrib/jsxgraph.cs"/> | ||
| + | </html> | ||
| + | <html> | ||
| + | <script> | ||
| + | var board = JXG.JSXGraph.initBoard('jxgbox4', {boundingbox: [-40, 150, 300, -150], keepaspectratio:true, axis:true}); | ||
| + | |||
| + | var strikepriceslider = board.create('slider', [[0,0],[300,0], [0.0,100, 300]], {name:'strikeprice'}, {withLabel: false}); | ||
| + | var writeputpriceslider = board.create('slider', [[0,0],[0,300], [0.0,100, 300]], {name:'callprice write'}, {withLabel: false}); | ||
| + | |||
| + | var strikepriceline= board.create('line', [[function(){return strikepriceslider.X()}, function(){return -150}],[function(){return strikepriceslider.X()},function (){return 200}]],{'strokeColor':'red', 'dash':'true'}); | ||
| + | |||
| + | var putoptionarrow1 = board.create('arrow', [[function(){return strikepriceslider.X()+200}, function(){return writeputpriceslider.Y()}],[function(){return strikepriceslider.X()},function (){return writeputpriceslider.Y()}]],{'strokeColor':'purple'}); | ||
| + | var putoptionarrow2 = board.create('arrow', [[function(){return strikepriceslider.X()}, function(){return writeputpriceslider.Y()}],[function(){return strikepriceslider.X()-200},function (){return writeputpriceslider.Y()-200}]],{'strokeColor':'purple'}); | ||
| + | |||
| + | </script> | ||
| + | </html> | ||
| + | |||
| + | |||
| + | |||
| + | See also: [[Call options|Call options]] | ||
[[Category:finance]] | [[Category:finance]] | ||
Latest revision as of 19:25, 27 August 2020
A put option gives the buyer of the option the right to sell the underlying asset at a fixed price at any time prior to the expiration date of the option. The buyer pays a price for this right.
At expiration,
- If the value of the underlying asset (S) < Strike Price(K)
- -> Buyer makes the difference: K-S
- If the value of the underlying asset (S) > Strike Price (K)
- -> Buyer does not exercise
More generally,
- The value of a put decreases as the value of the underlying asset increases
- The value of a put increases as the value of the underlying asset decreases
A Pay-off Diagram for a buyer of put option looks like this: you start out with a loss and gain profit if the actual share price becomes lower than the strikeprice. Buying a put option buys you protection against lower stock prices.
javascript:;
<script>
var board = JXG.JSXGraph.initBoard('jxgbox3', {boundingbox: [-40, 150, 300, -150], keepaspectratio:true, axis:true});
var strikepriceslider = board.create('slider', [[0,0],[300,0], [0.0,100, 300]], {name:'strikeprice'}, {withLabel: false});
var putpriceslider = board.create('slider', [[0,0],[0,-300], [0.0,-100, -300]], {name:'callprice write'}, {withLabel: false});
var strikepriceline= board.create('line', [[function(){return strikepriceslider.X()}, function(){return -150}],[function(){return strikepriceslider.X()},function (){return 200}]],{'strokeColor':'red', 'dash':'true'});
var writingputoptionarrow1 = board.create('arrow', [[function(){return strikepriceslider.X()+200}, function(){return putpriceslider.Y()}],[function(){return strikepriceslider.X()},function (){return putpriceslider.Y()}]],{'strokeColor':'yellow'});
var writingoptionarrow2 = board.create('arrow', [[function(){return strikepriceslider.X()}, function(){return putpriceslider.Y()}],[function(){return strikepriceslider.X()-200},function (){return putpriceslider.Y()+200}]],{'strokeColor':'yellow'});
</script>
A Pay-off Diagram for a seller of put option ('writing' a put') looks like this. In the interactive diagram below, the purple line represents the put for the seller:
See also: Call options