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Put Option

Options

A put option gives its holder the right to sell a stock at the strike price until expiration.

Its value rises as the stock falls below the strike, which is why puts are also used to protect shares you already own against a decline. The buyer's loss is limited to the premium paid, and the breakeven point is the strike minus the premium.

Example

You buy a $100 strike put for a $4 premium. If the stock is at $90 at expiration, the put is worth $10, a net gain of $6 per share. Breakeven is $96.

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More in the Guide

Options: Calls, Puts and the Anatomy of a PremiumA way to trade direction without owning the stock — and why the clock inside the premium always runs against the buyer.