A PUT option is a type of financial contract that gives the buyer the right, but not the obligation, to sell a stock at a specific price (called the strike price) before a certain date. Investors typically buy PUTs when they believe a stock’s price will go down, because the value of a PUT increases as the stock drops below the strike price.
On the other hand, when you sell a PUT option, you’re agreeing to buy the stock at the strike price if the buyer decides to exercise it. In return, you get paid a premium upfront. If the stock stays above the strike price, the option expires worthless, and you keep the premium as profit.
PUT options are a powerful tool for both protecting a portfolio and generating income — but they do come with risk. That’s why they’re best used when you understand the underlying stock and are prepared to either trade or hold it if assigned.