Put Option

A put option is the right to sell a particular underlying asset for an agreed amount at a specified date in the future with no obligation.
If you are the holder of a put option you want the stock to fall as much as possible.
The lower the stock price the more profit you will make.

When would you exercise a put option ?

You would exercise a put option at expiry if the current price is below the strike price.
This means you can buy the stock in the market for less than you are selling it for.
The function of the value of a put option is called a payoff function and can be plotted on a <B.Payoff Diagram.
The max function is used to indicate there is no obligation.

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Payoff Diagram

This is a simple payoff diagram for a buying a european put option with a strike price of 50 at expiry.

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Bloomberg Option Valuation Screen

Source: Bloomberg L.P

Bloomberg Scenario Analysis Screen

Source: Bloomberg L.P

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