Put Options

A put option is a contract between two parties - a buyer and a seller (the seller is commonly referred to as the "writer"). A put option gives is the option to sell shares of stock at a specified price (called the strike price) and time (called the expiration date) in the future. The option buyer has the right, but not the obligation to sell the underlying financial instrument from the option seller. The seller is obligated to buy the underlying financial instrument if the buyer decides to make the sale (this is referred to as exercising the option).

People buy put because they expect the underlying stock to go down. If the stock does go down they make a profit either by selling the puts at a higher price, or by exercising their option (i.e., sell the shares at the strike price and buy at the current market price).

Put options are quoted in dollar terms, but they actually cost 100 times the quoted amount.  For example, a put option quoted at $2.25 will actually cost $225.00. The commission for buying options is usually around $1.50 per contract.


Payoff from buying a put : Payoff from writing a put:
long put option
short put option