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Finance GlossaryPut Option
Put Option
Definition of Put Option
A put option is a contract that gives the buyer the right, but not the obligation, to sell a specified amount of an underlying security (like a stock) at a predetermined price (the strike price) on or before a specified date (the expiration date). Buyers of put options typically expect the price of the underlying asset to decline. Put options are used for speculation or for hedging a long position in the underlying asset.
Related Terms
Bull Market
Bull market is a positive trend in the stock market where price of shares increase by 20% or more after falling by 20%. Investors may say they’re bullish or expect a bull market to arrive when they believe that there will be prolonged periods of increase in the stock market.
Mean Absolute Deviation
Mean Absolute Deviation (MAD) is a statistical measure that shows how much the values in a data set differ from the average. It is calculated by taking the average of the absolute differences between each value and the mean.
Time Value of Money (TVM)
Time Value of Money (TVM) is the concept that money available today is worth more than the same amount in the future due to its earning potential. It forms the foundation of financial decision-making and valuation. TVM is applied in investments, loans, discounting cash flows, and retirement planning.
Defensive Stock
A defensive stock refers to the shares of iconic companies that generate stable and consistent returns and dividends, regardless of the market conditions.
Defensive stocks are rare because companies that have defense against every market condition are rare.
While defensive stocks may not generate high returns, they are known to add stability and defense against declining economic conditions. In India, stock of ITC Limited is an example of a defensive stock.
Defensive stocks are rare because companies that have defense against every market condition are rare.
While defensive stocks may not generate high returns, they are known to add stability and defense against declining economic conditions. In India, stock of ITC Limited is an example of a defensive stock.
Premium
In finance, a premium is the excess amount that the price of a security or asset is over its nominal value, intrinsic value, or its price in another market or context. For options, the premium is the price that a buyer pays for an option contract. In insurance, a premium is the sum of money that an individual or business is required to pay for an insurance policy. A stock may trade at a premium if the market price is higher than its book value, which often reflects strong growth potential or market optimism.
Derivatives Trading
Derivatives trading means buying and selling derivatives contracts like futures, options, swaps, and forwards either on an exchange or over the counter.
Trading derivatives means trading contracts that derive their value from an underlying asset like stocks, commodities, currencies, indexes, interest rates, and more.
The buyer of the contract can decide to take delivery to the underlying asset or offset it with an opposite contract.
Trading derivatives means trading contracts that derive their value from an underlying asset like stocks, commodities, currencies, indexes, interest rates, and more.
The buyer of the contract can decide to take delivery to the underlying asset or offset it with an opposite contract.
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