Simple meaning - Put option is bought when the underlying (Nifty, Jr.Nifty, Bank Nifty etc or stock) is expected to go down.
The financial Definition - A Put option gives the buyer the right to sell specified quantity of the underlying asset at the strike price on or before an expiry date.
Example of put option -
1200 Reliance Industries April put at Rs.15
Explanation of the above example is as follows
In above example trader is buying the one lot of Reliance Industries April Put expecting the Reliance stock price will come down to 1200 or even fall below.
How trader will get profit?
If the Reliance Industries stock price starts falling then the value of your put option (Rs.15) will starts increasing.
1200 - This is called the strike price
April - It is the expiry month.
Put - It is the option type.
Rs.15 - It is the price/value you are paying to buy one Reliance Industries stock. It is also called as premium.
One Reliance Industries lot size consists of 300 quantities.
So you are paying total Rs.15 x 300 Qty = Rs.4500 to buy one lot of Reliance put.
No comments:
Post a Comment