TeachMeFinance.com - explain put
put -- a contract giving the holder the right to sell a specific security at a specified price during a designated period. A put is purchased by someone who thinks the price of the underlying security will go down and who wants to lock in a higher selling price. Opposite of call.
Put -- A put (on a stock) is a contract or written agreement binding the issuer to receive from the holder stock named in the agreement within a certain time at a certain price if the holder shall so demand, or in other words, shall elect to deliver (put) the stock. For example, A signs a promise to receive 100 shares of some specified stock from B at 100 at any time within 60 days if B so demands. A sells th'.s promise to B for, say, $100. If within the 60 days the stock falls in price so that B can buy it at a profit B buys it at the lower price and calls on A to receive the stock. The stock must go below 99 before there is a profit for B. If the stock advances or does not fall below 99 B, of course, does not deliver (put) it and A makes $100 on his risk. In delivering the stock B must give one day's notice, except on the last day, when no notice is required. If a dividend becomes due on a stock during the pendency of a put on it the dividend goes to the seller of the put if the stock is put (delivered) to him. A dividend always goes with the stock. A put on grain or any other speculative commodity is based on the same general principle as in the case of stocks . For additional information see Privilege.
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