A put option is a financial contract that gives the holder the right, but not the obligation, to sell a specific underlying asset at a specified price (strike price) within a specified time period (expiration date). The underlying asset can be a stock, commodity, currency, or index.
The holder of a put option is said to have short put position, and the seller of a put option is said to have long put position. The holder of a put option can exercise the option to sell the underlying asset at the strike price at any time before the expiration date, while the seller of a put option is obligated to purchase the underlying asset at the strike price if the holder chooses to exercise the option.
A put option is considered to be a bearish strategy, as it allows the holder to profit from a decline in the price of the underlying asset. For example, if an investor buys a put option with a strike price of £50 and the price of the underlying asset falls to £40, the investor can exercise the option to sell the underlying asset at £50 and make a profit of £10 per share.
Put options can be used for several purposes, including hedging against a potential decline in the price of an asset, generating income through the sale of options, and speculating on the future price movement of an asset.
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