What is a PUT? how would it protect the bond market in the US if everybody wants their money back?

Answer 1

A put option is a type of financial instrument known as a derivative. It is basically an agreement between parties to exchange ownership of a stock at an agreed upon price within a certain time period. The exchange of the stock is optional and the owner of the put option decides whether it takes place.

The agreed upon price of the exchange is called the strike price. The date on which the put option expires is the expiry date. The amount of money required to purchase this put option is called the premium. If the exchange takes place, then one is said to have exercised the put option.

Put option premiums are always quoted per stock, but sold in lots of 100 shares minimum. Put options are always an agreement about being able to sell the stock at the agreed upon price. Put options come in both European style and American style.

European style put options are sold on European exchanges, while American style put options are sold in North American exchanges. The difference is quite simple. European options can only be exercised on the expiry date, while American style options can be exercised at any time during the life of the put option.

Answer 2

A Put is the type of option that gives the purchaser the right but not the obligation to sell a security for a specified price at a certain time. It's basically a bet that the bond price will drop. These are used when an investor is trying either to speculate on the downward movement of bonds or protect the gains from a long position that has generated strong returns but may be headed for a downturn.

So, if everybody sells their bonds the the price would fall and the yield would rise and the put would make money.