Put Option Put option is an option that internet honest earnings its holder the right to sell an asset, say put option value formula or stock, at a specified exercise price at the exercise date.
Its payoff equals the exercise price minus the price of the underlying asset. Value of a put option or simply put depends on the market price of the underlying asset the stock, bond, etc.
Like a call optionbut unlike forwards and futures, a put option requires payment of a premium to the writer of the option at the time of the initiation of the option contract. Investors purchase put option when they believe the stock might fall in value in future.
They exercise the option when the market price of the underlying asset is lower than the price at which they can put the underlying asset to the writer of the option at the exercise price or the strike price. Such option is called in the money option. The put option will be worthless if the current stock price is higher than the exercise price of the option, such option is called put option value formula option.
As a result, time value is often referred to as an option's extrinsic value since time value is the amount by which the price of an option exceeds the intrinsic value. Time value is essentially the risk premium the option seller requires to provide the option buyer the right to buy or sell the stock up to the date the option expires.
A European put option can be exercised only at a specified date i. A put option payoff is exactly opposite of an identical call option.
Payoff Formula The value of a put option equals the excess of the price at which we can sell the underlying asset to the writer i. Like a call option, the value of a put option can never be negative, because it is just an option. When the exercise price is lower than the current market price of the underlying asset, the option holder simply lets the option expire.
She did not want to lock up the money in the stock itself, so she bought 1, put options on AAPL stock on 15 June 20X3. Value the option at the exercise date and tell whether the option should be exercised or not.