Trading term

What is Put option?

A put option is a contract giving the buyer the right — but not the obligation — to sell an asset at a fixed 'strike' price before a set expiry. Put buyers profit when the price falls; their risk is capped at the premium paid. Puts are used to bet on declines or to insure a portfolio.

Buying a put gives you the right to sell 100 shares (per contract) at the strike price before expiration, for a premium. If the stock falls well below the strike, that right is valuable — you can sell high (at the strike) while the market trades low. If the stock stays above the strike, the put expires worthless and you lose only the premium. It's the mirror image of a call.

Puts have two main uses. As a bearish bet, a put is a defined-risk way to profit from a decline — cheaper and less risky than short-selling, whose losses are unlimited. As insurance, a put on a stock you own is a 'protective put': if the stock crashes, the put's gains offset the loss, like an insurance policy with the premium as its cost. Either way, the buyer's maximum loss is the premium, and time decay works against them just as it does with calls.

Long put — the payoff at expiry
$0 P&LprofitlossStrike $50break-even $48underlying price at expiry →Long put · max loss = $2 premium, profits as price falls

Above the $50 strike the put expires worthless — you lose only the $2 premium. Below break-even ($48) profit grows as the stock falls: capped loss, profit on a decline.

For example

You buy a $50 put for a $2 premium ($200). If the stock falls to $40 by expiry, the put is worth $10 — an $8 profit per share ($800). If the stock stays at or above $50, you lose the $200 premium. As insurance on shares you own, that put caps your downside below $50.

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Why it matters to you

A put option is the defined-risk way to profit from — or protect against — a falling market, without the unlimited risk of short-selling. That makes puts both a core bearish speculation tool and the market's primary form of portfolio insurance, which is why 'buying protection' almost always means buying puts.

⚠ Protection has a recurring cost

Using puts as insurance is powerful, but the premium is a real, recurring drag — buy protection continuously and the cost compounds, quietly eroding returns in calm markets when the insurance expires worthless. Puts are best used deliberately (around known risks) rather than held perpetually, or the 'insurance' can cost more than the crashes it guards against.

Frequently asked questions

What is a put option?

A put option is a contract giving its buyer the right, but not the obligation, to sell an asset at a fixed strike price before expiry. Put buyers profit if the price falls below the strike minus the premium; their risk is limited to the premium paid.

When do you buy a put option?

You buy a put to profit from an expected decline (a defined-risk alternative to short-selling) or to insure shares you own against a drop (a 'protective put'). In both cases your maximum loss is the premium, while the put gains value as the underlying falls.

What is a protective put?

A protective put is a put bought on a stock you already own, acting like insurance: if the stock falls below the strike, the put's gains offset the loss, capping your downside. The premium is the cost of that protection — like paying for an insurance policy.

What's the difference between a put and short-selling?

Both profit from a falling price, but a put's loss is capped at the premium paid, while short-selling has theoretically unlimited loss if the stock rises. A put also costs a premium and expires; a short position has no expiry but requires margin and pays no premium.

Related terms

Call optionA call option is a contract giving the buyer the right — but not the obligation — to buy an asset at a fixed 'strike' price before a set expiry date. Call buyers are betting the price will rise; their risk is capped at the premium paid, while the potential profit is open-ended.Cash-secured putA cash-secured put is an options strategy where you sell a put option while setting aside enough cash to buy the stock if you're assigned. You collect the premium as income; in exchange, you agree to buy the stock at the strike if it falls there. It's a way to get paid to buy a stock you want at a lower price.Covered callA covered call is an options strategy where you own 100 shares of a stock and sell a call option against them. You collect the premium as income; in exchange, you cap your upside at the strike. It's a popular way to generate income on shares you're happy to hold or sell.DeltaDelta measures how much an option's price moves for each $1 change in the underlying. A delta of 0.60 means the option gains about $0.60 if the stock rises $1. It ranges from 0 to 1 for calls (0 to −1 for puts) and doubles as a rough probability the option finishes in the money.
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