What is a Put Option?

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• What is In The Money (ITM) Put Option?

  A put option is said to be ITM when the underlying security’s current market price is lesser than the strike price of the contract.

• What is Out of the Money (OTM) Put Option?

  A put option is said to be OTM when the underlying security’s current market price is greater than the strike price of the contract.

• What is At the Money (ATM) Put Option?

  A put option is said to be ATM when the underlying security’s current market price is equal to the strike price of the contract.

• What is the effect of buying a Put Option?

  The buyer of the put option has the right, but not an obligation, to buy the underlying asset at the strike price at expiry. The buyer of a put option has to pay a premium to the seller for the privilege.

• What is the effect of selling a Put Option?

  The seller of the put option has an obligation to buy the underlying asset at the strike price if the buyer chooses to execute his right. The seller receives a premium from the buyer.