Talk:Put option
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Contents |
[edit] Graphs
Er...could we label the axes on these graphs? Thanks. -- Calion | Talk 15:43, 21 February 2007 (UTC)
[edit] Error
This article is mixing up the writer with the buyer in the first and second paragraphs. This is ridiculous.
-Sorry I had a test the next day and I was getting a bit worked up from the confusion :)
—I thought something wasn't right. "The put allows the buyer the right but not the obligation to sell" ... but later "The buyer has the obligation to purchase the underlying asset" Kevininspace 18:43, 6 March 2007 (UTC)
/* It is a bit confusing, but actually there are two things we are talking about here; the buyer and seller of the putoption and then the buyer and seller of the actual underlying stock itself */
[edit] Confused
The first paragraph left my very non-financial head spinning. I've noted the confusing points with asterisks:
"The put allows the *buyer* the right but not the obligation *to sell* a commodity or financial instrument (the underlying instrument) *to the ... (seller)* of the option at a certain time for a certain price (the strike price). The writer *(seller)* has the obligation to *purchase* the underlying asset at that strike price, if the buyer exercises the option."
Um, in the real world, buyers _buy_ and sellers _sell_. Here, the buyer is selling and the seller is buying. Was this a series of mistakes, or is finance-o-speak typically written backwards like this? If it is, wow!, talk about obfuscation. Thanks for clarifying this arcane process for us less market savvy types.Krumhorns (talk) 17:40, 29 January 2008 (UTC)
- I see your confusion. Here's what it really means: The put allows the buyer (of the put) the right . . . to sell a commodity or financial instrument (the underlying instrument) to the seller (of the put) at a certain time for a certain price. The seller (of the put) has the obligation to buy the underlying asset. . .. That is, there are two separate assets we're talking about: (1) the put, and (2) the underlying asset (e.g. stock) on which the put is written. Both assets are being bought and sold, each for a different. The buyer of the put may end up selling the stock, and vice versa. Is that any clearer? Ronnotel (talk) 04:20, 30 January 2008 (UTC)
[edit] Try this for an intro paragraph
A "put" or "put option" is an option to sell an item at a preset price at some time in the future. That is it is a contract between two parties where one party (the buyer of the put) has the option, but not the obligation, to sell an item, typically a commodity or financial instrument such as a stock, to the other party (the seller of the put) at future date and at a predetermined price (the strike price) lower than the current market price. If the price of the specified item does not drop below the strike price within the time period specified by the contract neither party has any further obligation and the transaction is complete. If the price does drop below the strike price, the seller of the put has an obligation to buy the item from the other party at the strike price, so the seller or writer of the put has a maximum exposure set by the strike price should the market price of the item being optioned drop to zero.
Although neither party has to own the item being optioned at the time the contract is written, the prototypical case is where the buyer of the put does already own the item and wants to reduce their risk should its market price drop. Whereas the seller of the put does not own the object but is willing to accept future risk in exchange for immediate compensation. The perceived risk effectively determines the price of the put.
In this transaction, the buyer of the put is paying money upfront in order to reduce potential loss should the market price of the item drop. Therefore the buyer believes the market price will rise, but also recognizes a possibility that the price will drop and wants to set a floor on their future potential losses. The seller of the put is being paid to take on that risk should the market price drop and therefore they also beleive the price will rise but are able to tolerate more risk than the seller.
The existing article is pretty confusing. I tried to start simple and also explain motivations, but I will leave it to someone else to change the article. 69.125.146.118 (talk) 14:52, 3 April 2008 (UTC)
