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Simple English definitions for legal terms
put
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A quick definition of put:
A put option is a type of financial contract that gives the holder the right, but not the obligation, to sell a certain amount of securities, commodities, or other assets at a fixed price within a specified time. This means that if the market declines, the holder can still sell at the fixed price. It is the opposite of a call option, which gives the holder the right to buy at a fixed price. There are different types of options, such as American and European options, and they can be used for speculative purposes or as part of a larger investment strategy.
A more thorough explanation:
Definition: A type of option contract that gives the holder the right, but not the obligation, to sell an asset at a predetermined price within a specified time period.
Example: John holds a put option for 100 shares of XYZ stock at a strike price of $50 per share. If the stock price drops below $50 before the expiration date of the option, John can exercise his right to sell the shares at $50 each, even if the market price is lower.
This example illustrates how a put option can be used as a form of insurance against a drop in the value of an asset. By purchasing a put option, the holder can limit their potential losses if the market price of the asset falls below a certain level.