Writing puts to acquire stock
Selling a put option at an exercise price that would represent a good investment by an option writer who believes a stock's value will fall, so that the writer cannot lose. If the stock price unexpectedly goes up, the option will not be exercised and the writer is at least ahead the amount of the premium received. If the stock loses value, as expected, the option will be exercised, and the writer has the stock at what he had earlier decided was originally a good buy, and he has the premium income in addition.
Nearby TermsWriting cash-secured puts Writing naked Writing puts to acquire stock Written-down value Wrong-way risk
Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University