Put Options Explainer
A put option gives its buyer the right, but not the obligation, to sell an underlying asset at a stated strike price on or before the relevant expiration. The put writer receives the premium and must buy the asset at the strike if assigned.
Investors may buy puts to express a bearish view or to place a floor beneath an owned position. The protection is temporary and costs the premium. If the underlying remains above the strike through expiration, the put can expire worthless even though it provided insurance during its life.
At expiration, a long put’s simple breakeven is the strike price minus the premium paid. The buyer’s maximum loss is the premium, while the profit is bounded because the underlying cannot fall below zero. A short put can require a large cash purchase after a sharp decline.
The put’s price responds to the underlying, time, expected volatility, rates, distributions, and market liquidity. Portfolio protection should be evaluated across the full position: a put may gain while the shares lose, but its strike, expiration, and cost determine how complete that hedge is.
The buyer can deliver the underlying under the contract terms.
The writer may be required to purchase it.
An owner may use a put as temporary downside protection.
A separate buyer may use the same contract for a bearish view.
The premium reduces returns and coverage expires.
Strike selection determines how much downside is absorbed.
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