# Put option

> A contract giving the buyer the right, but not the obligation, to sell a stock at a set price on or before a set date.

Source: https://www.quantisnow.com/glossary/put-option
Topic: Glossary / Options
Also known as: put options, long put
Last updated: 2026-10-27

A put option is a contract that gives its buyer the right, but not the obligation, to sell an underlying stock at a fixed [strike price](https://www.quantisnow.com/glossary/strike-price) on or before the expiration date. The seller of the put collects a premium and takes on the obligation to buy the shares at the strike if the buyer exercises.

## How it works

A standard US equity put covers 100 shares and is quoted per share, so a put priced at $1.20 costs $120 per contract. Puts gain value as the stock falls.

- **Buyer:** maximum loss is the premium. Breakeven at expiration is strike minus premium.
- **Seller:** keeps the premium if the stock stays above the strike, but may have to buy shares at the strike if it drops. A seller who sets aside the cash to do that is writing a cash-secured put.

Investors use puts two ways: as insurance on shares they own (a protective put) and as a bearish bet with defined risk.

## Why it matters for traders

Buying puts is the main alternative to [short selling](https://www.quantisnow.com/glossary/short-selling). There is no stock to borrow, no [borrow fee](https://www.quantisnow.com/glossary/borrow-fee) and no unlimited loss, but the put has a deadline and loses time value every day. Put prices often swell before binary events like a PDUFA date or earnings, so the stock may need to fall sharply just to cover the premium.

Put volume relative to call volume feeds the [put/call ratio](https://www.quantisnow.com/glossary/put-call-ratio), a widely watched sentiment gauge.

## Example

Northwind Therapeutics (NWTX) trades at $40 ahead of an FDA decision. A trader buys one $35 put for $1.20 ($120). Breakeven is $33.80.

- The FDA issues a complete response letter and NWTX closes at $22 at expiration. The put is worth $13.00 ($1,300). Profit: $1,180.
- The drug is approved and NWTX rises to $48. The put expires worthless. Loss: $120.

## FAQ

### Is buying a put the same as shorting a stock?

Both profit from a decline, but a put caps your loss at the premium and requires no share borrow. A short position has no expiration but carries unlimited risk.

### Why do puts on some stocks cost so much?

High implied volatility, often driven by a pending catalyst or heavy short interest, raises put premiums. Hard-to-borrow stocks also tend to have expensive puts because shorting the shares directly is costly.

## Related terms

- [Call option](https://www.quantisnow.com/glossary/call-option.md): A contract giving the buyer the right, but not the obligation, to buy a stock at a set price on or before a set date.
- [Strike price](https://www.quantisnow.com/glossary/strike-price.md): The fixed price at which an option holder can buy (call) or sell (put) the underlying stock if the option is exercised.
- [Option premium](https://www.quantisnow.com/glossary/option-premium.md): The price an options buyer pays the seller for a contract, made up of intrinsic value plus time value.
- [Short selling](https://www.quantisnow.com/glossary/short-selling.md): Selling borrowed shares in the hope of buying them back later at a lower price, profiting from a decline in the stock.
- [Put/call ratio](https://www.quantisnow.com/glossary/put-call-ratio.md): Put options volume (or open interest) divided by call options volume, used as a gauge of bearish versus bullish positioning.
- [Implied volatility (IV)](https://www.quantisnow.com/glossary/implied-volatility.md): The market's forecast of how much a stock will move, expressed as an annualized percentage and backed out of current option prices.

## On Quantisnow

- [Options chains](https://www.quantisnow.com/options)
- [Options chain basics](https://www.quantisnow.com/guides/options-chain-basics)
- [Options chains](https://www.quantisnow.com/docs/options-chains)
- [Options profit calculator](https://www.quantisnow.com/tools/options-profit-calculator)