What is a put option?

A put option (or “put”) is a contract giving the option buyer the right, but not the obligation, to sell—or sell short—a specified amount of an underlying security at a predetermined price within a specified time frame. This predetermined price at which the buyer of the put option can sell the underlying security is called the strike price .

What happens if you sell a put option?

The owner of the put can sell the asset for more than the current market price. Puts are out of the money if the stock stays at or rises above the strike price, which causes the put to likely expire worthless. If an investor buys a put, they expect the stock price to decline. NerdWallet provides an example of selling a put option.

What is the strike price of a put option?

This predetermined price at which the buyer of the put option can sell the underlying security is called the strike price . Put options are traded on various underlying assets, including stocks, currencies, bonds, commodities, futures, and indexes.

What is the difference between call options and put options?

"Call" options give an investor the right to buy an underlying asset within a specific timeframe and price. A "put" gives the investor the right to sell the underlying asset for a specific price before it expires. The specific price agreed upon is called the "strike price."