Put Options

Buying a put option gives you the right (but not the obligation) to sell 100 shares of a company’s stock at a certain price (called the strike price) from the date of purchase until the third Friday of a specific month (called the expiration date).

People buy puts because they hope the stock will go down, and they will make a profit, either by selling the puts at a higher price, or by exercising their option (i.e., forcing the seller of the put to buy the stock at the strike price at a time when the market price is lower).

Put options are quoted in dollar terms (e.g., $3.25), but they actually cost 100 times the quoted amount (e.g., $325), plus an average of $1.50 commission (charged by my discount broker – commissions charged by other brokers may differ).