A put option contract gives the buyer of the contract the right to sell the underlying asset to the seller of the option at the strike price on the day of expiration. The put buyer has the right to ‘put’ the asset or sell the asset to the put option seller on the date of expiration.

A put option contract seller receives a premium for agreeing to have stock ‘put’ on them at a set price by a specific date. The put writer has agreed to buy a stock at the strike price of the put option they sold to open. 

Stock option contracts generally trade in contracts that control 100 shares of stock. This size can be different if a stock has split or reverse split and also at times mini contracts in some option chains have traded in the past. 

Put options are simply trading vehicles. The level of their risk is correlated to your position size and the odds of success in your timeframe before the contract expiration. The same principles of profitable trading apply to options that apply to other financial markets. The difference is that with long put option contracts you can capture the full downside move of an underlying asset during a trend while the risk of loss is capped to the price you paid for the option contract versus the theoretical unlimited risk of a short position that can go up to any price. 

Selling put options short is a way to get paid a premium to buy a stock at the lower price you want if your put option strike price is reached before expiration. If your buy price is not reached then you keep the premium you collected to sell the put option contract. 

Traders that are bullish sell put options short. Traders that are bearish buy put options. 

Put options are great tools for both leveraging more buying power and at the same time quantifying the risk. 

Options can be sold at any time at their current value and do not have to be held until expiration. 

Options are fungible assets and the option contracts are interchangeable and not specific to the original buyer and seller but traded on the open market among different buyers and sellers.

This is an example of the content from my Options 101 eCourse. 

Long put options
Gxti [CC BY (https://creativecommons.org/licenses/by/3.0)]
Short Put Options
Gxti [CC BY (https://creativecommons.org/licenses/by/3.0)]

By Steve Burns

After a lifelong fascination with financial markets, Steve began investing in 1993 and trading his accounts in 1995. It was love at first trade. After more than 30 successful years in the markets, Steve now dedicates his time to helping traders improve their psychology and profitability. New Trader U offers an extensive blog resource with more than 4,000 original articles, online courses, and best-selling books covering various topics.