Put Options Explained

A put option gives you the right to sell 100 shares of a stock at a specific price (strike) before expiration.

How Put Options Work

Buying a Put

  • You pay: Premium
  • You receive: Right to sell at strike
  • You profit: When stock falls below strike - premium
  • Max loss: Premium paid
  • Use case: Protection or bearish bet

    • Selling a Put (Cash Secured Put)

  • You receive: Premium
  • You have: Obligation to buy at strike
  • You profit: When stock stays above strike
  • Max profit: Premium received
  • Use case: Income while waiting to buy stock

    • Put Option Pricing

    Put premiums are affected by:

  • Stock price - Lower stock = higher put value
  • Strike price - Higher strike = higher put value
  • Time to expiration - More time = more value
  • Volatility - Higher IV = higher premium
  • Interest rates - Higher rates = slightly lower puts

    • Example: NVDA Put Option

    Stock Price: $130 Strike: $120 Premium: $4.00 Expiration: 30 days

    For a Put Buyer:

  • NVDA at $110: Profit = ($120 - $110 - $4) × 100 = $600
  • NVDA at $130: Loss = $400 (premium paid)

    • For a Put Seller:

  • NVDA above $120: Keep $400 premium
  • NVDA at $115: Assigned, effective cost = $120 - $4 = $116