Question

When you buy a PUT option, what does this give you?

	1.	The right to buy the underlying stock at the strike price
	2.	The right to sell the underlying stock at the strike price
	3.	The right to buy the underlying stock at the premium
	4.	The right to sell the underlying stock at the premium

Answer 1

Answer is 2. The right to sell the underlying stock at the strike price

1) An option is a financial instrument which derives its value from the underlying asset.

2)There are two kinds of options. Call option and put option.

3) The person who buys the option is called holder and the person who sells the option is called writer

Holder of a call option gets the right to buy the underlying asset at the strike price. Writer of call option has an obligation to sell the underlying asset at the strike price

Holder of put option gets the right to sell the underlying asset at the strike price. Writer of the put option has the obligation to buy the underlying asset at the strike price.

4) Strike price is the price agreed today for a transaction to take place on the maturity date.