> For the complete documentation index, see [llms.txt](https://eako-capital.gitbook.io/eako-user-guide/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://eako-capital.gitbook.io/eako-user-guide/put-option.md).

# Put Option

{% hint style="info" %}
Puts provide protection against adverse exchange rate movements. In return for this protection, the client pays a premium for the option. If the option is exercised, there is physical delivery of the underlying currency.

A Put gives its holder the right to sell a given quantity of a currency in return for another currency at a predetermined strike price, at a future date (European style Call) or until a future date (American style Call). At expiry, the holder of the Put has unlimited upside potential if the spot rate is lower than the strike price. If it ends up higher than the strike price, the Put is not exercised and the loss is limited to the amount of the option premium.
{% endhint %}

## Long Put

**Payoff Diagram:**

<figure><img src="/files/aoqpSEGAmhPRaGBDu6pa" alt="Long Put Payoff Profile"><figcaption></figcaption></figure>

**Direction Assumption:** Bearish

**Maximum Profit:** Unlimited

**Maximum Loss:** Limited to Premium paid&#x20;

**Breakeven Price:** Strike Price - Premium paid

**Theta:** Passage of Time -> Negative Effect\
The time value of the Long Put's premium, which the holder has "purchased" by paying for the option, generally decreases or decays with the passage of time. Theta decrease accelerates as the option contract approaches expiration.

**Volatility:** \
If Volatility increases -> Positive Effect. \
If Volatility decreases -> Negative Effect.

## Short **Put**

**Payoff Diagram:**

<figure><img src="/files/ylJP40u8N7LP3lX5CKCo" alt="Short Put Payoff Profile"><figcaption></figcaption></figure>

**Direction Assumption:** Bullish

**Maximum Profit:** Limited to Premium received&#x20;

**Maximum Loss:** Unlimited

**Breakeven Price:** Strike Price - Premium received

**Theta:** Passage of Time -> Positive Effect\
The time value of the Short Put's premium, which the option seller has "collected" by selling the option, generally decreases or decays with the passage of time. Theta decrease accelerates as the option contract approaches expiration.

**Volatility:** \
If Volatility increases -> Negative Effect. \
If Volatility decreases -> Positive Effect.


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