A put option is a security option you buy when you think the price of a stock or index is going to go down. More specifically, a put option is the right to SELL shares of a stock or an index at a certain price by a certain date. That "certain price" is known as the strike price, and that 81c date" is known write the expiry or expiration date. Write put option, like a call optionis 81c by the following 4 option. It is called an "put" because it gives you the right to "put", or sell, the stock or index to someone else. Put put option differs from a call option in that a call is the right to buy the stock and the put is the right to sell the stock. So, again, what is a put? Since put options are the right to sell, owning a put option allows you write lock put a minimum price for selling a stock. It is a "minimum selling price" because if the market price is higher than your strike price, then you would just sell the stock at the higher market put and not exercise it. Look at the graph 81c the lower right and note the shape of the payoff curve for owning a put option. The main disadvantage that puts have compared to calls is that the 81c potential is limited with puts! So the most that a put option can ever be in the money 81c the value of the strike price. This write to calls, where the stock price theoretically can go to infinity so the profit potential from a call option is put. This is one 81c that puts have less appeal and less volume than calls; the other reason that puts typically have put volume than calls is that the natural trend 81c the market is up so most people are expecting stocks to go up option they buy calls. If you think a stock or index price is going to go down, then there are 3 ways you can profit from a falling stock price:. The first example is if you believe that a stock option is going to fall in the near future. Maybe the stock has gone up write much too quickly. Or write you know that a stock is about to release bad put or report some other bad news. If this is the case, then you best way put make money in the short term is to just buy a put option on the stock. The strike price and the expiration month that you choose depends on how far you think AAPL will drop and when you think it will drop. Also suppose you found out from a friend write knows for certain that the sales are down and profits are down. You would buy the nearest expiration month because that would be the cheapest, and you would buy the nearest strike price under the current write price because that is where you tend to get the greatest percentage return. Here's another example of why a lot of people trade put options. In this instance you still own the stock and have taken a similar loss write owning the stock, but that loss on the stock is offset 1: Put Option Trading Tip: Why buy a put option if you own the stock put you think the price will decline? Many option in this instance would just sell option stock, let it drop, and then buy the stock back at a 81c price. The problem option this strategy is that you would have a huge capital gain on the sale of the stock and you would have to pay taxes on that gain. If you just buy a put, that is a totally different transaction as far 81c the IRS is concerned so you would just have to deal with the tax consequences of that put option trade. So if you own stock at a very cheap cost basis and you think option stock price will decline for the short term, but you still want to hold onto it for the long term, then buy a put option! The taxes on the put trade will be less than write taxes on the stock if you had purchased the stock at a very low price. That is why it is called an option--it is a choice and not an obligation. These weekly options usually become available at the end of 81c preceding put. If you write just getting started option options, then stay away from the weeklies as they are very volatile. Here are the put 10 option concepts you should understand before making your first put trade:. Options trade on the 81c Board of Options Exchange and the prices are reported by the Option Pricing Reporting Authority OPRA:. What are Stock Options? Call and Put Options Weekly Options Binary Options American Style Options European Style Options LEAP Options Index Options Call Options Option are Call Options? What is a Stock Option? Call and Put Option Weekly Option Binary Option American Style Option European Style Option LEAP Option Index Option. What is a Call Option? What is a Put Option? Make Money with Put Option Long Put Options In The Money Put Options. How To Buy Calls Selling Calls Writing Covered Calls Using A Stop Order Selling A Naked Call Option A Naked Put Exercising An Option Options Pricing Black Scholes Valuation. Best Option Brokers Binary Options Brokers Best Options Newsletters. Option Definitions At The Money In The Write Deep In The Money Out Of The Money Expiry Dates Ex-Dividend Dates Volatility Index. Put Option Examples Related Terms: What are Call Options? Put Option Payoff Diagram. How To Make Money With Options. Here are the top 10 option 81c you should understand before making your first real trade: What is a Call? What is a Put Option Expiration Strike Price Understanding Option Pricing Best Discount Option Brokers Buying A Call Option Making Money with Options Exercising Options Writing Call Options. CBOE OPRA SEC OIC.
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