What it is
A put option is a financial contract that grants the buyer the right to sell 100 shares of an underlying stock at a predetermined price, known as the strike price, on or before a specific expiration date. Investors typically buy put options when they anticipate the underlying stock's price will fall significantly below the strike price, allowing them to profit from the downward movement.
Put options are frequently used for speculation on falling stock prices or as a hedging tool to protect against potential losses in a stock portfolio. If the stock price falls below the strike price before expiration, the option is "in-the-money" and can be exercised for a profit or sold. The value of a put option increases as the underlying stock price falls and as implied volatility rises.
Why it matters
Put options can be used to profit from declining stock prices or to protect your portfolio from downturns, but they can expire worthless.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice