Put option
Principles of Finance glossary · Time Value of Money
Definition
A contract granting the holder the right to sell an asset at a specified price.
Put option in plain English
A put option is like buying insurance for something you own. It gives you the RIGHT (but not the obligation) to sell an asset at a locked-in price, called the strike price, no matter how low the market price actually falls. Imagine you own a concert ticket and pay a friend a small fee for a promise to buy it from you for $100 anytime this month — if the show flops and tickets crash to $20, you can still force the sale at $100. People buy puts to protect against prices dropping, which is why a put gains value when the underlying asset falls.
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Practice Put option
If the stock price is 35 at expiration, what is the net profit?
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