Put option value

 A Put option represents the right (but not the requirement) to sell a set number of shares of stock (which you do not yet own) at a pre-determined 'strike price' before the option reaches its expiration date. A put option is purchased in hopes that the underlying stock price will drop well below the strike price, at which point you may choose to exercise the option.

A put option (or “put”) is a contract giving the option buyer the right, but not the obligation, to sell—or sell short—a specified amount of an underlying security. at a predetermined price within a specified time frame. This predetermined price at which the buyer of the put option can sell the underlying security is called the strike price.

Put options are traded on various underlying assets, including stocks, currencies, bonds, commodities, futures, and indexes. A put option can be contrasted with a call option, which gives the holder the right to buy the underlying security at a specified price, either on or before the expiration date of the option contract.

Definition of put value

put option gives you the right, but not the obligation, to sell a stock at a specific price (known as the strike price) by a specific time – at the option's expiration. For this right, the put buyer pays the seller a sum of money called a premium.

Formula put option value

To calculate profits or losses on a put option use the following simple formula: Put Option Profit/Loss = Breakeven Point – Stock Price at Expiration.

How profit is calculated in put option?

We can calculate the profit by subtracting the strike price and the cost of the call option from the current underlying asset market price.

Important of put value?

You can buy put options contracts through a brokerage, like ally invest, in increments of 100 shares. (Non-standard options typically vary from the 100 share increment.)

 Example :

1)Let’s say you think the market value of XYZ technology company will decline within three months from the $100 a share they are trading at today. A put option gives you the right to sell at your strike price of $100 within those three months, even if the stock price falls below that amount.

Assume you exercise your put option when the stock falls to $90: Your earnings are $10 per share, multiplied by 100 shares, or $1,000. 

2)If the ABC company's stock drops to $80 then you could exercise the option and sell 100 shares at $100 per share resulting in a total profit of $1,500. Broken out, that is the $20 profit minus the $5 premium paid for the option, multiplied by 100 shares. 

Buying a put option gives you the right to sell a stock at a certain price (known as the strike price) any time before a certain date. This means you can require whomever sold you the put option (known as the writer) to pay you the strike price for the stock at any point before the time expires.