What Is a Put Option?
A put option gives its buyer the right, but not the obligation, to sell 100 shares at a set price before a set date. How puts work, why investors use them as insurance, and the seller's risk.
In one sentence
Put option. An option that gives its buyer the right to sell the underlying asset at the strike price.
How it works
A put is an option to sell. Like any option, it's the right, not the obligation, to sell a specified amount of an underlying interest, such as a company's shares, at a fixed price before a specified expiration date, and for most options on shares one contract covers 100 shares.1 A put gains value as the share price falls.
| Strike price | $45 |
|---|---|
| Premium | $1.50 a share, or $150 for the contract |
| Break-even at expiration | $45 − $1.50 = $43.50 |
| Share price $40 at expiration | ($45 − $40 − $1.50) × 100 = $350 profit |
| Share price $45 or above | The put expires worthless: −$150 |
Puts as insurance
An investor who owns 100 shares can buy a put to set a floor under them, a strategy called a protective put. In the example, the shares can't be worth less than $45 at expiration, for a cost of $150. Like any insurance, it costs money every time, and most of the time it isn't used.
The seller's side
Whoever sells a put collects the premium and must buy the shares at the strike if the put is exercised. If the shares fall to $30, a seller of the $45 put buys at $45 shares worth $30: a loss of $1,350 after the premium.
Learn it properly
- Calls and PutsDerivatives (depth track) · Free
- Options: A First LookPart 2: What You Can Own
Notes and sources
- The Options Clearing Corporation. Characteristics and Risks of Standardized Options. Checked 2026-10-13. Back to text