Definition
A put option is a contract that gives its holder the right, but not the obligation, to sell a set quantity of an underlying asset at a fixed strike price on or before an expiration date. Each standard equity put covers 100 shares.
A put gains value when the underlying falls — it locks in a selling price above the market. The buyer pays a premium for that right; the seller collects the premium and takes on the obligation to buy if the holder exercises.
Why it matters
How it works
The put buyer pays a premium upfront. If the underlying drops below the strike, the put moves into the money and can be sold for a profit or exercised to sell shares at the strike. If the underlying stays above the strike, the put expires worthless and the buyer loses only the premium. A cash-secured put seller, by contrast, hopes the option expires worthless so they keep the premium; if assigned, they buy the shares at the strike, effectively at a discount to the price when they sold the put. Strike and expiration choices set the trade's cost and probability of payoff.