Tavagapedia

Put option



Key Takeaways

  1. The put option is an options instrument that lets the investor sell a specific quantity of stocks or commodities at a mentioned price within a time period.
  2. Many investors execute put options when markets are in bearish conditions means the market is facing a slowdown, and prices are falling drastically to earn the profit.
  3. In the put options, the price at which the trader agrees to sell the shares is called the strike price.
  4. The amount paid by the trader for the actual option agreement is known as the premium.


The put option is an options instrument that lets the investor sell a specific quantity of stocks or commodities at a mentioned price within a time period.

There is no legal obligation to go through with the trade, unlike in futures.

Put Option Meaning

The put option is a type of an options instrument, which allows investors to sell shares of an underlying security at a particular price within a specific time period. In a volatile market, investors need to review their investment strategies when selecting the securities for investment. Many investors execute put options when markets are in bearish conditions means the market is facing a slowdown, and prices are falling drastically to earn the profit. Through options trading, interested participants can invest in stocks, ETFs, and indexes. 

Put option call option / what is put and call option

The put option is for selling purposes, and the call option is for buying intentions. Investors can sell a specific amount of shares via put option at a particular price within a particular period. The put option is used during bearish markets, and the call option is performed during bullish markets. A call option is a contract in derivatives trading, giving the buyer the right (not obliging them) to buy a security at a given price by a given date. Investors buy a call option in a belief that prices of a particular stock will rise and can earn more profit after purchasing the stock at a lower cost than its market price. 

How does the put option work?/ Put option example / what is put option with example?

In bearish market conditions, many traders or investors choose the put options to earn more profits.

In the put options, the price at which the trader agrees to sell the shares is called the strike price. And the amount paid by the trader for the actual option agreement is known as the premium. The premium acts as collateral or insurance in case if things go the other way around. And if the price of the stock falls below the strike price, the investor can execute his\her put option contract, and the issuer has the obligation not to buy the shares at the strike price. 

For example, if an investor opts the put option agreement for ABC company stock for Rs.10, i.e., Rs.0.10 per share for 1000 share contracts with a strike price of Rs.100. If the ABC company’s share price goes below Rs.100, let’s assume it drops to Rs.95, so the investor can purchase the stocks on the stock exchange and sell the put option at Rs.100 per share. From this transaction, the investor will gain a profit of Rs.4.99 per share. This how the put option works.

Put option is an options instrument which lets the investor sell a specific quantity of stocks or commodities at a mentioned price within a time period.

There is no legal obligation to go through with the trade, unlike in futures.