Put Option

A put option is a contract that gives its buyer the right, but not the obligation, to sell a specific stock (or other asset) at a set price, called the strike price, before or on a certain expiration date. The buyer pays a fee, called a premium, to whoever sells (writes) the contract, in exchange for that right.

Think of it like an insurance policy on a stock you're worried might drop. If you own shares and buy a put, you're locking in a price at which you can sell them, even if the market price falls much lower. If you don't own the shares, buying a put is a way to bet that the price will fall, since the put itself becomes more valuable as the stock price drops.

Each standard equity option contract usually covers 100 shares, so the premium quoted per share needs to be multiplied by 100 to get the actual dollar cost. A put gains value as the stock falls below the strike price and loses value as the stock rises above it; if the stock ends up above the strike at expiration, the put typically expires worthless and the buyer's loss is limited to the premium paid.

The part that trips up beginners is the difference between buying a put and selling (writing) one. Buying a put has limited risk (you can only lose the premium) and profits from a decline. Selling a put is the opposite: you collect the premium upfront, but you take on the obligation to buy the stock at the strike price if the buyer exercises the option, which can mean a large loss if the stock falls sharply. Puts and calls are mirror images: a call is the right to buy, a put is the right to sell.