Put Option

A Put Option is a type of Options contract that gives the holder (buyer) the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a certain time frame. The set price of the asset in the contract is known as the ‘strike price’. If the holder decides to sell the asset, the seller of the put option (also known as the writer) is obligated to buy the asset at that strike price. 

Investors typically buy a Put Option when they anticipate that the price of the underlying asset is going to decrease in the future. This type of contract is used as a way to hedge against potential losses in the value of assets they already own, or to speculate on a downturn in the market. 

For example, if an investor owns stock in a company and is concerned that the price may drop significantly, they may purchase a Put Option. If the stock price does indeed fall, they can exercise their Put Option to sell the stock at the higher strike price, reducing their losses. So, essentially, a Put Option can provide some financial protection against declining market prices.

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