Quantcast
Sell a Put: What Does it Mean? | SterlingTerrell.net

Sell a Put: What Does it Mean?


 Selling Put Option, Payoff Chart

 What does it mean to "Sell a Put" on a commodity, stock, or index?

This simply refers to: The selling of a  put option.

A "put" option is the right to "sell."

(Whereas, a "call" option is the right to "buy.")

The most common example of options is in real-estate.

One buys the right, but not the obligation, to buy a property at a set price within the next so many days.

It is the same for an option on a stock or commodity.

Selling one put option on cotton at 70.00 cents/lb. gives someone else the right to sell to you 100 bales of cotton (or one futures contract on cotton) for 70.00 cents/lb. anytime between now and the option's expiration date.

If 2.00 cents/lb. is paid to the seller of a put option, and the price of cotton goes down by 10.00 cents/lb, the loss to the put seller is 8.00 cents/lb.

Selling a put option limits the potential gain to the premium paid for the option - while the potential loss is limited as prices hit zero.