# PUT OPTIONS

Discuss PUT OPTIONS within the Financial Management ( FM ) forums, part of the Resolve Your Query - Get Help and discuss Projects category; In a put option, since the investor with a long position has a right to sell the stock and the ...

 PUT OPTIONS
Sunanda K. Chavan

Status: Offline
Posts: 6,680
Join Date: Jul 2010
PUT OPTIONS - October 8th, 2010

In a put option, since the investor with a long position has a right to sell the stock and the writer is obliged to buy it at the will of the buyer, the profit profile is different from the one in a call option where the rights and obligations are different.

Consider a put option contract on a certain share, PQP, Suppose, two investors X and Y enter into a contract and take short and long positions respectively.

The other details are given below:

Exercise price = Rs I 10

Expiration month = March, 2001

Size of contract= I 00 shares

Date of entering into contract =January 6, 2001

Share price on the date of contract = Rs 1 12

Price of put option on the date of contract = Rs 7.50

Now, as the contract is entered into, the writer of the option, X will receive Rs 750 (=7.50 x 100) from the buyer, Y At the time of maturity, the gain/loss to each party depends on the ruling price of the share. If the price of the share is Rs 110 or greater than that, the option will not be exercised, so that the writer pockets the amount of put premium-the maximum profit which can accrue to a seller.

At the same time, it represents the maximum loss that the buyer is exposed to. If the price of the share falls below the exercise price, a loss would result to the writer and a gain to the buyer. The maximum loss that the writer may theoretically be exposed to is limited by the amount of the exercise price. Thus, if the value of the underlying share falls to zero, the loss to the writer is equal to Rs. 110 – Rs. 7.50 = Rs. 102.50 per share

Friends: (0)
 Re: PUT OPTIONS
Rose Marry

Status: Offline
Posts: 2,125
Join Date: Apr 2016
Re: PUT OPTIONS - April 15th, 2016

Quote:
 Originally Posted by sunandaC In a put option, since the investor with a long position has a right to sell the stock and the writer is obliged to buy it at the will of the buyer, the profit profile is different from the one in a call option where the rights and obligations are different. Consider a put option contract on a certain share, PQP, Suppose, two investors X and Y enter into a contract and take short and long positions respectively. The other details are given below: Exercise price = Rs I 10 Expiration month = March, 2001 Size of contract= I 00 shares Date of entering into contract =January 6, 2001 Share price on the date of contract = Rs 1 12 Price of put option on the date of contract = Rs 7.50 Now, as the contract is entered into, the writer of the option, X will receive Rs 750 (=7.50 x 100) from the buyer, Y At the time of maturity, the gain/loss to each party depends on the ruling price of the share. If the price of the share is Rs 110 or greater than that, the option will not be exercised, so that the writer pockets the amount of put premium-the maximum profit which can accrue to a seller. At the same time, it represents the maximum loss that the buyer is exposed to. If the price of the share falls below the exercise price, a loss would result to the writer and a gain to the buyer. The maximum loss that the writer may theoretically be exposed to is limited by the amount of the exercise price. Thus, if the value of the underlying share falls to zero, the loss to the writer is equal to Rs. 110 – Rs. 7.50 = Rs. 102.50 per share
Hello sunanda,

Attached Files
 Notes Put on Options.pdf (939.9 KB, 0 views)
Friends: (0)

 Bookmarks

 Tags options, put
Related to PUT OPTIONS

Sunanda K. Chavan Financial Management ( FM ) 1 January 18th, 2018 06:43 PM
Sunanda K. Chavan Financial Management ( FM ) 1 April 16th, 2016 02:41 PM
Abhijeet S Financial Management ( FM ) 1 April 12th, 2016 05:40 PM
Deepshikha Mohanty Company Profiles & News !! 0 November 2nd, 2008 12:02 PM

 Thread Tools Display Modes Linear Mode

 Posting Rules You may not post new threads You may not post replies You may not post attachments You may not edit your posts BB code is On Smilies are On [IMG] code is On HTML code is OnTrackbacks are On Pingbacks are On Refbacks are Off Forum Rules

ManagementParadise.com is not responsible for the views and opinion of the posters. The posters and only posters shall be liable for any copyright infringement.

Search Engine Optimization by vBSEO ©2011, Crawlability, Inc.