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Put Option
A contract giving the holder the right to sell an asset at a specified price before expiration.
Put Option
A put option gives the buyer the right, but not the obligation, to sell a stock at a fixed price within a set time period.
How it works
- You pay a premium to buy the put option
- If the stock falls below the strike price, your option gains value
- You can exercise (sell the stock at strike) or sell the option for profit
- If the stock stays above the strike, the option expires worthless
Common uses
- Portfolio insurance: Buy puts to protect against downside in stocks you own
- Speculation: Bet on a stock declining without short selling
- Income generation: Sell puts to collect premium on stocks you want to buy
Example
- Buy a $50 put for $2 premium
- Stock drops to $40 → option is worth at least $10
- Profit: $10 − $2 = $8 per share
Risk profile
- Maximum loss (buying): The premium paid
- Maximum gain (buying): Strike price − premium (if stock goes to zero)
- Breakeven: Strike price − premium paid
Key Takeaways
- Context matters when interpreting any financial metric.
- Combine multiple data points for informed decisions.
- Continue learning to build investment knowledge.
Quick Reference
Category
Derivatives
Difficulty
Beginner
Reading Time
1 min
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Where You'll See This
This concept appears throughout stock detail pages and financial data.