What is put on a put?

A put on a put is an options contract that gives its buyer the right to sell an underlying options contract. The underlying asset of the put on a put option is a vanilla put option. A put on a put is essentially an option to sell an option. The buyer of a put option is a trader who expects the asset upon which the option is based to fall in price.

What is a put option?

A put option (or “put”) is a contract giving the option buyer the right, but not the obligation, to sell—or sell short—a specified amount of an underlying security at a predetermined price within a specified time frame. This predetermined price at which the buyer of the put option can sell the underlying security is called the strike price .

What is the strike price of a put option?

This predetermined price at which the buyer of the put option can sell the underlying security is called the strike price . Put options are traded on various underlying assets, including stocks, currencies, bonds, commodities, futures, and indexes.

What happens if a buyer fails to exercise a put option?

If the buyer fails to exercise the options, then the writer keeps the option premium. If the underlying stock's market price is below the option's strike price when expiration arrives, the option owner (buyer) can exercise the put option, forcing the writer to buy the underlying stock at the strike price.