Difference between revisions of "Put options"

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(Replaced content with "Put options Category:finance Category:M13 Category:Term")
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Put options
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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
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of the option. The buyer pays a price for this right.
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At expiration,
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* If the value of the underlying asset (S) < Strike Price(K)
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** -> Buyer makes the difference: K-S
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* If the value of the underlying asset (S) > Strike Price (K)
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** -> Buyer does not exercise
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More generally,
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* The value of a put decreases as the value of the underlying asset increases
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* The value of a put increases as the value of the underlying asset decreases
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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.
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<html>
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<div id="jxgbox3" class="jxgbox" style="height:300px; width:400px;"></div>
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</html>javascript:;
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<script>
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  var board = JXG.JSXGraph.initBoard('jxgbox3', {boundingbox: [-40,  150, 300, -150], keepaspectratio:true, axis:true});
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  var strikepriceslider = board.create('slider', [[0,0],[300,0], [0.0,100, 300]], {name:'strikeprice'}, {withLabel: false});
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  var putpriceslider = board.create('slider', [[0,0],[0,-300], [0.0,-100, -300]], {name:'callprice write'}, {withLabel: false});
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  var strikepriceline= board.create('line', [[function(){return strikepriceslider.X()}, function(){return -150}],[function(){return strikepriceslider.X()},function (){return 200}]],{'strokeColor':'red', 'dash':'true'});
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  var writingputoptionarrow1 = board.create('arrow', [[function(){return strikepriceslider.X()+200}, function(){return putpriceslider.Y()}],[function(){return strikepriceslider.X()},function (){return putpriceslider.Y()}]],{'strokeColor':'yellow'});
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  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'});
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</script>
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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:
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 +
<html>
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<div id="jxgbox4" class="jxgbox" style="height:300px; width:400px;"></div>
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</html>
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<html>
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<script type="text/javascript"charset="UTF-8"src="https://cdn.jsdelivr.net/npm/jsxgraph@1.1.0/distrib/jsxgraphcore.js">
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</script>
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<link rel="stylesheet"type="text/css"href="https://cdn.jsdelivr.net/npm/jsxgraph@1.1.0/distrib/jsxgraph.cs"/>
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</html>
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<html>
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<script>
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  var board = JXG.JSXGraph.initBoard('jxgbox4', {boundingbox: [-40,  150, 300, -150], keepaspectratio:true, axis:true});
 +
 
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  var strikepriceslider = board.create('slider', [[0,0],[300,0], [0.0,100, 300]], {name:'strikeprice'}, {withLabel: false});
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  var writeputpriceslider = board.create('slider', [[0,0],[0,300], [0.0,100, 300]], {name:'callprice write'}, {withLabel: false});
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  var strikepriceline= board.create('line', [[function(){return strikepriceslider.X()}, function(){return -150}],[function(){return strikepriceslider.X()},function (){return 200}]],{'strokeColor':'red', 'dash':'true'});
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  var putoptionarrow1 = board.create('arrow', [[function(){return strikepriceslider.X()+200}, function(){return writeputpriceslider.Y()}],[function(){return strikepriceslider.X()},function (){return writeputpriceslider.Y()}]],{'strokeColor':'purple'});
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  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'});
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</script>
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</html>
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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