Put Option

See Also:
Call Option
Synthetic Stock
Future Value
Intrinsic Value – Stock Options
Purchase Option

Put Option Definition

A put option is the right for an investor to sell an asset at a pre-determined exercise price on a certain date known as the put option expiration.

Put Option Explained

A put option gives a holder or investor the ability to make an essentially risk free profit if the market fluctuates correctly. The holder of an option can simply look into the market without taking any real part in it. The benefit for a put option holder comes if the stock price does not exceed the put option price. Therefore, the lower the better for the put option holder because he is selling into the market. A put is exercised only if the holder can deliver an asset that is worth less than the exercise price.

Put Option Example

Jim has received a put option with the right to sell 100 shares of Wawadoo Inc. at a price of $35 by December. The current month is January, and the current stock price is $32. Jim could exercise the put now, but he believes that the market will drive the Wawadoo stock further down. By November, the stock has dropped to $28. Jim exercises his option and makes a profit of $700 (($35*100) – ($28*100)). If the price had increased throughout the year and went above the put option exercise price then Jim would have simply let his option expire. By doing this Jim has not gained anything or lost anything, except the potential where he could have exercised the put at the beginning of the year.
put option definition

ARTICLES YOU MIGHT LIKE

Selling Your Business to a Private Equity Group

Private Equity companies are companies that have raised capital from investors and they have created funds. Each fund may have its own legal mandate. These are common examples of mandates: Invests only in oil and gas companies Is agnostic to what industry it invests in Invests only in companies it controls Private Equity companies come

Read More »

Planning Your Exit Strategy

When you start a company, you should generally know how you are going to exit the company. It could be a merger or acquisition, leave it to family, an initial public offering (IPO), a management buyout, etc.. Whatever the case, planning your exit strategy is almost as important as running your company because it’s the

Read More »

Book Value of Equity Per Share (BVPS)

See also: Price to Book Value Analysis Price to Sales Ratio Analysis Book Value of Equity Per Share (BVPS) Definition Book Value of Equity per Share (BVPS) is a way to calculate the ratio of a company’s Stakeholder equity (as stated in the balance sheet) to the number of shares outstanding. Investors commonly use BVPS

Read More »

JOIN OUR NEXT SERIES

Financial Leadership Workshop

MARCH 28TH-31ST 2022

THE ART OF THE CFO®

Financial Leadership Workshop

Days
Hours
Min

September 12-15th 2022

Days
Hours
Min
SHARE THIS ARTICLE

JOIN THE NEXT STRATEGIC CFO™ WORKSHOP SERIES

Strategic CFO™ Financial Leadership Workshop
The Art Of The CFO®

Days
Hours
Min

December 5-8th, 2022