Put Options: What They Are, How They Work and How to Trade Them
What is a put option?
A put option (“put”) is a contract that gives the owner the right to sell an underlying security at a set price (“strike price”) before a certain date (“expiration”).
The seller sets the terms of the contract. The buyer pays the seller a pre-established fee per share (a “premium”) to purchase the contract.
Each contract represents 100 shares of the underlying stock. Investors don’t have to own the underlying stock to buy or sell a put.
A reminder: Just like call options, put options are considered derivatives because their value is derived from another security (e.g., stock, bonds, index or currency). Here we focus on put options where the underlying asset is a stock.
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