The Sale of Put Options

by David Jenyns on July 30, 2007

The Sale of Put Options
An individual (or a company) has $100,000, which he would invest in common stocks. He could buy these stocks in the market or he could sell Put options in an attempt to acquire the stocks a few points below the current market price or to earn premiums from the sale of Put options against the money that he is willing to invest. For an example: With a stock selling at 50, a man (or a company) sells a Put option at 50 for 90 days, receiving a premium of $300 for each 100-share Put contract. For the $300-premium, which he receives at the time that he "makes" the Put contract, he agrees to buy 100 shares at 50 before expiration of the option if the holder of the option cares to deliver it to him.

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