What are put options?

Put options are a type of options contract. These contracts allow the owner to sell a security at a specific price before the expiration date listed in the options contract. Investors buy put options to either hedge long positions or speculate that the price of a specific stock will decline.

When is a put option exercised?

If an investor owns shares of a stock and owns a put option, the option is exercised when the stock price falls below the strike price. Instead of exercising an option that's profitable, an investor can sell the option contract back to the market and pocket the gain.

What is the difference between a put option and a call option?

The opposite of a put option is a call option, which gives the contract holder the right to purchase a set amount of shares at the strike price prior to its expiration. A put option is a contract that gives its holder the right to sell a number of equity shares at the strike price, before the option's expiry.