See: Put Option. See: Putable Bond. See: Putable Common Stock.
The provision or right of having a put means that the owner of that right has the right to sell to someone else the underlying asset.
Example:
I have a put provision when I pay $385,000 for your home...to put it back to the bank for $350,000 any time in the next 3 years for...pretty much any reason. I'm paying a premium for the house, and the bank is throwing me a kind of insurance chip, in allowing me to maintain a put provision when I've bought the home.
Why would they do this? Bad times, bad moon a-rising. Think: 2008/2009 mortgage crisis echoes. Banks were desperate to buy time and get out of bad loans, so all kinds of deals were made to get homes sold and out and into the hands of people who could actually pay back the money they'd promised to pay back.
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Finance: What Is a Call Option?25 Views
finance a la shmoop. what is a call option? option? option, where are you? okay
yeah yeah. not phone options, call options. and a close but no cigar. a call option [man smokes in a tub of cash]
is the right to call or buy a security. the concept is easy the math is hard.
you think Coca Cola's poised for a breakout as they go into the new low
calorie beverage business. their stock is at 50 bucks a share and you can buy a [man stands on a stage as crowd cheers]
call option for $1. well that call option buys you the right
to then buy coke stock at 55 bucks a share anytime you want in the next
hundred and 20 days. so let's say Coke announces its new sugarless drink flavor
zero it's two weeks later and the stock skyrockets to fifty eight dollars a
share. you've already paid the dollar for the option now you have to exercise it. [man lifts weights]
so you buy the stock and you're all in now for fifty five dollars plus one or
fifty six bucks a share and your total value is now fifty eight bucks. well you
could turn around today and sell the bundle that moment, and you'll have
turned your dollar into two dollars of profit really fast. and obviously had the [equation on screen]
stock not skyrocketed so quickly well you would have lost everything. still you
lucked out and now you're sitting on some serious cash, courtesy of your call [two men in a tub of cash]
options. as for Coke flavor zero turned out to be nothing more than canned water.
Up Next
What is a put option? A put option is a type of contract that lets the investor sell shares of a stock at a certain price and within a window of ti...