Put Options

We can:
1. Buy a put option (Long the put) or
2. Sell a put option (Short the put).

Buy a Put Option:

The Put buyer pays a premium (to own the put option).

The Put buyer has the right, but not the obligation, to sell the stock at the agreed strike price 

The Put buyer has only got this right until the expiration date

The Put buyer loses this right after the expiration date

Sell a Put Option:

• The Put seller (writer) collects the buyer’s premium. 
• The Put seller (writer) has an obligation to buy the shares of the underlying stock at the agreed price 
• The Put seller (writer) owes this obligation to the buyer only until the expiration date 
• The Put seller (writer) does not have this oblication after this expiration date. 

Exercise and Assignment:
• The Put buyer has the right to sell the stock at the agreed price.
• When the Put buyer exercises his right to sell the stock, we say that the Put seller (writer) has been assigned.
• Upon assignment, the Put seller (writer) has to buy the stock from the Put buyer at the agreed-upon strike price.
 

When we Buy Put Options:

• If the underlying stock price goes down, we make money. 
• If the underlying stock price goes up, we lose money. 

Say AAPL is trading at $99.27. We buy 110 Strike Put Option at $10. In the next few days:

• If AAPL stock goes down to $80, the 110 Strike Put Option increase in value to about $30 (approx) 
• But if AAPL goes up to $120, the 110 Strike Put Option will reduce in value to about $4 (approx) 

Next: Exchanges ...