How Do Puts Work?

How does a put option work? Put options are in the money when the stock price is below the strike price at expiration. The put owner may exercise the option, selling the stock at the strike price. ... If the stock price is above the strike price at expiration, the put is out of the money and expires worthless.

How do you make money on a put option?

You make money with puts when the price of the option rises, or when you exercise the option to buy the stock at a price that's below the strike price and then sell the stock in the open market, pocketing the difference. By buying a put option, you limit your risk of a loss to the premium that you paid for the put.

How does buying a put work?

Buying a put option gives you the right to sell a stock at a certain price – the strike price – any time before a certain date. This means you can require whoever sold you the put option – the writer – to pay you the strike price for the stock at any point before the time expires.