Options & derivatives
Put option
The right to sell an asset at a fixed price before a set date.
How it works
A put gains value as the underlying falls below the strike. It is the standard way to insure a holding against a decline.
Like all insurance, it costs money whether or not it is used, and the cost rises sharply when fear is already elevated.
Worked example
Holding a share at $100 and buying a $90 put for $2 caps the loss at roughly $12 a share, however far the price falls.
Related terms
- Call optionThe right to buy an asset at a fixed price before a set date.
- Protective putBuying a put on shares you own, as insurance against a fall.
- Strike priceThe price at which an option holder can buy or sell the underlying asset.
- Tail-risk hedgingDeliberately paying a small ongoing cost to limit losses in a severe market fall.
- Implied volatilityThe volatility the market is pricing into an option, derived from its premium.
Mentioned in
More in Options & derivatives
All 30 Options & derivatives terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.