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What is a put option?
A put option is a contract giving its buyer the right, but not the obligation, to sell an asset at a fixed strike price on or before an expiry date. The buyer gains if the price falls far enough below the strike to cover the premium paid.
What it means for you
Holders of an asset sometimes buy puts as insurance against a fall; the cost is the premium, lost entirely if the price stays above the strike. A put seller collects the premium but must buy at the strike even if the asset has collapsed.
How it works
A put is in the money when the strike is above the current price and out of the money when it is below. When a holder exercises, the writer receives an assignment and must buy the underlying at the strike. In the SEC's example, a put with a 70 strike bought for a 2.20 premium breaks even at 67.80; if the price is above 70 at expiry, it expires worthless. On futures, a put can instead give the right to enter a short futures position at the strike. Unlike short selling, a put buyer's loss is capped at the premium.
An example
Say you hold a coin worth $100 and pay $4 for a put with a $90 strike. If the coin falls to $60, you can still sell at $90, so your loss is $14 including the premium. If it stays above $90, the put expires and you are out $4.
Sources: SEC Investor Bulletin: An Introduction to Options, CFTC Glossary · checked 4 October 2026
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Educational content, not financial advice. Written by hand and checked against the source named above. Something wrong? Tell us and we reply within two business days.