In July, you purchase a September 75 put option on Keebler, Inc. common stock. You:

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A put option gives the holder the right to sell a stock at a specified price (the strike price) before the option expires. If you purchase a September 75 put option, you have the right to sell Keebler stock at $75. If the stock price is below $75 at expiration, exercising the option would be profitable, as you could buy the stock at the lower market price and sell it for $75. The initial cost of buying the option (the premium) represents a negative cash flow. If the option is exercised profitably, the sale of the stock at the strike price would result in a positive cash flow, offsetting the initial cost.

In July, You Purchase a September 75 Put Option on Keebler