Posted in Finance, Accounting and Economics Terms, Total Reads: 309
Definition: Put To Seller
A terminology used to indicate that a put option has been exercised. A put option entitles the holder to sell the underlying assets at an agreed upon price. , irrespective of the market price, the put writer is obliged to buy option at the previously agreed price when the contract is executed.
Put to seller usually occur when the strike price is lower than he market value of the asset. The seller at this point would have an option but not an obligation to sell the asset.
For example - If the investor buys a put option to hedge his risk of lowering of value of underlying asset, he buys a 6 month put option at a strike price of $60. He pays a premium of $2 per share to the put option writer as he assumes the risk of buying the option if the price falls below the strike price. Before the expiry of the option, if the stock falls below $60, investor can sell the stock to put writer and still get $60 per share.