Put Option

A contract giving the buyer the right, but not the obligation, to sell an asset at a set price before or on a set date.

Example

A put with strike 90 lets its holder sell 100 shares at 90 each, whatever the market price.

Important

Bought puts are often used as insurance against a fall, and the premium is a cost paid whether or not the fall happens.

Related terms

• Call Option — A contract giving the buyer the right, but not the obligation, to buy an asset at a set price before or on a set date.
• Protective Put — Buying a put option on shares you own to limit the loss if their price falls.
• Strike Price — The price at which an option holder can buy (for a call) or sell (for a put) the underlying asset.

Lessons that explain it

• A contract about a price, not a piece of anything — An option or future is an agreement whose value depends on another asset. You own a right or an obligation with an expiry date, not a share of a business. (10 min)
• Big percentages on a small bet, and most bets expire worthless — Option payoffs are lopsided: a bought option can multiply its premium or lose all of it, and the price usually has to move a long way just to break even. (12 min)

All 578 terms in the Investing glossary