Put Option
A put option gives the buyer the right (but not the obligation) to sell an underlying asset - usually a stock - at a specific price, known as the strike price, before or on the expiry date.
Put options are commonly used to gain exposure to potential decreases in asset prices or as a form of portfolio protection against market declines. The buyer pays a premium for this right. This right does not guarantee profit, and outcomes depend on market movements. If the asset’s price falls, the option may become profitable to exercise or sell. If the price remains above the strike price, the option may expire worthless, and the premium paid could be lost in full.
Put options can be either:
● American style – exercisable at any time up to expiry
● European style – exercisable only at expiry
While options are used in both retail and institutional investing, they involve specific risks, including the potential for a total loss of the premium. Complex features, price sensitivity to market factors, and the possibility of rapid value changes mean that options trading requires a clear understanding of how they work. Options may not be appropriate for all investors.
Why put options matter to investors
Common market applications of put options:
● Protect a portfolio from falling asset prices (hedging)
● Benefit from price declines without directly short-selling the asset
● Manage risk or balance positions within a wider options strategy
However, options are complex financial products and involve significant risk. They are not suitable for all investors. Understanding their mechanics, pricing influences, and the risk of loss is essential before considering trading.