Quick Definition

A put option is a financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a predetermined price within a specified time frame.

Examples

• 1An investor buys a put option for a stock that is currently priced at $50 per share. The option allows the investor to sell the stock at $55 per share, protecting against a potential decline in the stock's price.
• 2A trader uses put options as a hedge against a portfolio of tech stocks, ensuring they can minimize losses if the tech market crashes.
• 3During a volatile market period, an investor purchases put options on commodities they own, such as oil, to lock in selling prices before prices potentially drop.

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