Stock Charted
Glossary

Put Option

A put option is a contract that gives the buyer the right, but not the obligation, to sell a specified amount of an underlying asset at a set price before or on a set expiration date.

What Is a Put Option?

A put option is a type of options contract that gives its holder the right to sell an underlying asset, such as a stock, at a fixed price called the strike price. The right lasts until the contract's expiration date. The buyer pays a premium to the seller, known as the writer, for this right. The buyer is never required to sell, which is why the contract is described as optional.

How a Put Option Works

Investors usually buy puts when they expect a stock's price to fall. If the market price drops below the strike price, the put becomes "in the money," because the holder can sell at the higher strike price rather than at the lower market price. If the market price stays above the strike price, the put generally expires worthless, and the buyer loses only the premium paid.

The seller of a put takes the opposite side. The seller collects the premium but must buy the asset at the strike price if the buyer chooses to exercise. Sellers therefore profit when the price stays flat or rises, and they face losses if the price falls sharply.

Example

Suppose a stock trades at 50 dollars per share, and an investor buys a put with a strike price of 45 dollars that costs 2 dollars per share. Each standard contract covers 100 shares. If the stock falls to 35 dollars, the investor can sell at 45 dollars, which is far above the market price. Subtracting the premium gives a profit per share of 8 dollars, before fees and taxes. If the stock stays above 45 dollars, the investor's loss is limited to the 2 dollar premium per share.

Why It Matters to Investors

Put options are often used for hedging. An investor who owns shares may buy puts to limit losses if the price declines, much like insurance. Puts are also used for speculation on falling prices, since a small premium can control a larger number of shares. Because options involve leverage and can expire worthless, they carry risks that are different from owning the stock directly. Understanding how the premium, strike price, and expiration date interact is an important first step before trading them.

Updated October 15, 2026. For general education only; not financial, tax or legal advice.

Browse the Glossary

Related Terms

Options Contract

An options contract is a financial agreement that gives its buyer the right, but not the obligation, to buy or sell an underlying asset at a set price on or before a specified date.

Strike Price

The strike price is the fixed price at which the holder of an option can buy or sell the underlying asset, such as a stock, when the option is exercised.

Expiration Date

The expiration date is the last day on which a derivative contract, such as an option or futures contract, remains valid and can be exercised, after which it becomes void.

Call Option

A call option is a contract that gives its buyer the right, but not the obligation, to buy a specified quantity of an underlying asset at a set price before or on a set expiration date.

Implied Volatility (IV)

Implied volatility is the level of future price movement that the market expects for an asset, inferred backward from the current market price of its options.

Intrinsic Value

Intrinsic value is an estimate of an asset's true worth based on its underlying fundamentals, such as expected cash flows, rather than its current market price.