What is a Put option?
Hi Mark,

Appreciate if you can explain put option in layman terms.

Yumi Sat


A put option is a contract between two people - the buyer and the seller.

The buyer pays a cash premium to the seller.

In return for that premium, the seller grants to the buyer certain rights.

In simple terms: A put option is an agreement that allows the put owner to sell something specific. If the put owner decides to sell that specific item, then the put seller is obligated to buy it.

Thus, the put owner has the right to sell a specific asset (such as 100 shares of stock) at a defined price (called the strike price) at any time before the put option expires.

Example: Suppose a put owner has the right to sell 100 shares of IBM at $110 per share. If IBM is trading at $98 per share, then the put owner can go to the marketplace and buy 100 shares of IBM, paying $9,800. He can then exercise his rights as the owner of the put option and immediately sell those 100 shares at $110 per share, or $11,000.

If the expiration date of the option arrives and the put owner chooses not to exercise his rights, then the put option becomes worthless and the put owner's rights expire.


Mark D. Wolfinger
Create Your Own Hedge Fund: Increase Profits and Reduce Risk With ETFs & Options