Put Option
A contract giving the right, but not the obligation, to sell an asset at a set price before expiration.
Also called: put · puts · long put
In plain language
A put buyer profits when the underlying falls below the strike price by more than the premium paid. Maximum loss is the premium.
Puts are widely used as insurance. Holding a stock and buying a put creates a floor under the position, at the cost of the premium.
They are also the defined-risk alternative to short selling, avoiding both unlimited loss and borrow costs — but with time working against you.
Seen on a chart
Why it matters
A protective put caps downside at a known price without the gap risk of a stop order, because the right to sell at the strike does not depend on liquidity.
Common mistakes
- Buying puts only after volatility has already spiked, when premium is most expensive.
- Treating puts as cheap insurance without accounting for how quickly that cost accumulates.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
A contract giving the right, but not the obligation, to buy an asset at a set price before expiration.
The price at which an option contract can be exercised.
The price paid for an options contract.
The market’s expectation of future price movement, derived from option prices.
How much an option’s price moves for a $1 move in the underlying.