# What is buying put options

If the buyer exercises his option, the writer will buy the stock at the strike price. This strategy is best used by investors who want to accumulate a position in the underlying stock, but only if the price is low enough. The put writer's total potential loss is limited to the put's strike price less the what is buying put options and premium already received.

Moreover, the dependence of the put option value to those factors is what is buying put options linear — which makes the analysis even more complex. If the strike is Kand at time t the value of the underlying is S tthen in an American option the buyer can exercise the put for a payout of K-S t any time until the option's maturity time T. Energy derivative Freight derivative Inflation derivative Property derivative Weather derivative. Option pricing is a central problem of financial mathematics.

The put writer believes that the underlying security's price will rise, not fall. If the what is buying put options is Kand at time t the value of the underlying is S tthen in an American option the buyer can exercise the put for a payout of K-S t any time until the option's maturity time T. If the option is not exercised by maturity, it expires worthless.

The put writer believes that the underlying security's price will rise, not fall. A European put option allows the holder to exercise the put option for a short period of time right before expiration, while an American put option allows exercise at any time before expiration. The what is buying put options factors reduce the time value of a put option: If the buyer exercises his option, what is buying put options writer will buy the stock at the strike price. The advantage of buying a put over short selling the asset is that the option owner's risk of loss is limited to the premium paid for it, whereas the asset short seller's risk of loss is unlimited its price can rise greatly, in fact, in theory it can rise infinitely, and such a rise is the short seller's loss.

If the buyer fails to exercise the options, then the writer keeps the option premium as a "gift" for playing the game. The buyer will not exercise the option at an allowable date if the price of the underlying is what is buying put options than K. If the stock falls all the way to zero bankruptcyhis loss is equal to the strike price at which he must buy the stock to cover the option minus the premium received. Articles needing additional references from November All articles needing additional references.