How Put Options Work
Put options are the opposite of call options. For U.S.-style options, a put options contract gives the buyer the right to sell the underlying asset at a set price at any time up to the expiration date. Buyers of European-style options may exercise the option—sell the underlying—only on the expiration date.
Here, the strike price is the predetermined price at which a put buyer can sell the underlying asset. For example, the buyer of a stock put option with a strike price of $10 can use the option to sell that stock at $10 before the option expires.
*It is only worthwhile for the put buyer to exercise their option (and require the put writer/seller to buy the stock from them at the strike price) if the current price of the underlying is below the strike price. For example, if the stock is trading at $11 on the stock market, it is not worthwhile for the put option buyer to exercise their option to sell the stock at $10 because they can sell it for a higher price on the market.

What the Put Buyer Gets

The put buyer has the right to sell a stock at the strike price for a set amount of time. For that right, the put buyer pays a premium. If the price of the underlying moves below the strike price, the option will be in-the-money (it will have intrinsic value). The buyer can sell the option for a profit (this is what many put buyers do) or exercise the option (sell the shares).

What the Put Seller Gets

The put seller, or writer, receives the premium. Writing put options is a way to generate income. However, the income from writing a put option is limited to the premium, while a put buyer can continue to maximize profit until the stock goes to zero.
Last modified 7mo ago
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