Put option is a contract that offers the buyers the right to sell an underlying asset at a predetermined price, known as the strike price, and within a specified time frame, known as the expiration date.
To be given the right to do that, the buyer has to pay a premium to the seller to compensate the seller for taking up the obligation.
Example: Assume the date today is 6 Dec 2021. The buyer of a put option has the right to exercise the put to sell 100 shares of Apple stock at $160 per share any time on, or before the expiration date of 7 Jan 2022, regardless of the market price of Apple by then. In exchange for this right to exercise the put option, he has to pay a premium of $540.
If you want to learn more in detail about what put options are, watch the full video below! In the video, we use an analogy to explain the mechanics of put options for beginners to understand put options on a clearer note.
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