# Put Option | Definition | Payoff Formula | Example ## Payoff of put option formula

The price fell to \$885 by the exercise date. Value the option at the exercise date and tell whether the option should be exercised or not.

## Short Selling vs. Put Options: What's the Difference?

The payoff diagram of a put option looks like a mirror image of the call option (along the Y axis). Consider a put option with a strike price of \$97 and a premium of \$8.

### Put Option - WallStreetMojo

Payoff profile of buyer of asset: Long asset In this basic position, an investor buys the underlying asset, ABC Ltd. shares for instance, for Rs. 7775, and sells it at a future date at an unknown price, St. Once it is purchased, the investor is said to be “long” the asset.

Payoff profile for buyer of call options: Long call A call option gives the buyer the right to buy the underlying asset at the strike price specified in the option. The profit/loss that the buyer makes on the option depends on the spot price of the underlying. If upon expiration, the spot price exceeds the strike price, he makes a profit. Higher the spot price, more is the profit he makes. If the spot price of the underlying is less than the strike price, he lets his option expire un-exercised. His loss in this case is the premium he paid for buying the option.

Payoff profile for buyer of put options: Long put A put option gives the buyer the right to sell the underlying asset at the strike price specified in the option. The profit/loss that the buyer makes on the option depends on the spot price of the underlying. If upon expiration, the spot price is below the strike price, he makes a profit. Lower the spot price, more is the profit he makes. If the spot price of the underlying is higher than the strike price, he lets his option expire un-exercised. His loss in this case is the premium he paid for buying the option.

However, this only applies when underlying price is below strike price. When it gets above, the result would be negative (you would be losing money by exercising the option). Because a put option gives you the right but not obligation to sell, if underlying price is above strike price, you choose to not exercise the option and therefore cash flow at expiration is zero.

In this case its \$655 - \$8 = \$97 Another feature to note is that if the stock price is above the strike price, Donna will just let the options expire without using them and her losses will be limited to the premium she paid for the options. Profits are unlimited as the price falls further than \$97. Here is a formula:

Calculate the profit or payoff for put buyer and put writer, the put premium is \$5, the exercise price is \$85, the stock is currently trading at \$665 and the stock trading at expiration is \$665.

Calculate the profit or payoff for put writer if the investor owns one put option, the put premium is \$, the exercise price is \$55, the stock is currently trading at \$655 and the stock trading at expiration is \$95. Assume one option equals 655 shares.

Put option is an option that gives its holder the right to sell an asset, say bond or stock, at a specified exercise price at the exercise date. Its payoff equals the exercise price minus the price of the underlying asset.