Put Options Explained

You can get put options explained to you in a couple of sentences, as in: a put option is an options contract that gives the buyer of the put the right to sell 100 shares (per contract) of the underlying security at a given price, by a specified date in the future. The put seller, on the other hand, assumes the obligation to buy 100 shares of the underlying stock at a given strike price, by a defined expiration date in the future.

You may have a pretty good understanding of stock options basics in both buying and selling call options, which in their simplest forms usually involve assuming risk through leverage when buying calls, and alternately, offer opportunity to reduce risk by hedging, when selling calls (also known as writing calls).

For some people though, buying and selling put options is a little harder to understand. After all, how can the put buyer sell 100 shares of something he does not own? How in turn can a put seller fulfill his obligation to buy 100 shares of stock that the put buyer does not own? In this post I’ll go over puts in such a way that even an options beginner can understand. Continue reading Put Options Explained