📈 What Is a Put Option?
From the buyer point of view:
A Put Option gives you the right to sell 100 shares of a stock at a specific price (the strike price) before the expiration date.
You pay a premium upfront for this right.
❌ If the stock price stays above the strike price, you just let the option expire. Your maximum loss is the premium you paid.
✅ If the stock price goes below the strike price, you can exercise the option — and sell your shares at the higher strike price, making a profit.
A Put Option Seller (also called a put writer) agrees to buy the stock at the strike price if the buyer chooses to exercise the option.
In exchange, the seller receives the premium — this is their maximum profit.
❗ If the stock price crashes, the seller might be forced to buy shares at a much higher strike price, even though the market price is much lower. In short, the seller earns limited reward (premium) but takes on higher risk if the trade moves against them.
RISK!!!
Selling naked put options is risky if you’re not ready to buy the stock.
DON’T EVER SELL NAKED PUT OPTIONS!!!
“Naked” means you’re selling the option without holding the shares or cash to cover it.
📦 One Option = 100 Shares
Remember!!! When you enter 1 Option contract, it represents 100 shares of a stock. So if the premium is $2, it means you pay or receive $2 × 100 = $200 premium as the buyer or seller respectively.
🎟 Simple Example
Let’s say:
- A stock is trading at $50
- You buy a Put Option with a $50 strike price
- You pay a $3 premium → total cost: $3 × 100 = $300
Now two things can happen, the stock price can go up or down:
📈 Stock Stays Above $50
Buyer won’t execute the option
Buyer Loss = $300 premium paid
Seller Profit = $300 premium collected — no shares bought
📉 Stock Drops to $40
Buyer executes the option to sell at $50
Buyer Profit = ($50 − $40 − $3 premium) × 100 = $700
Seller Loss = Must buy stock at $50 while market price is $40
→ ($10 loss − $3 premium received) × 100 = −$700 (If the seller intends to buy share at this low target price, he / she will not mind buying the share at the low price, just need to ensure that you are selling put options for fundamentally good company)
💡 Why Use Put Options?
- Protects your stock from falling prices (like insurance)
- Lets you short a stock (profit from drops) with limited risk
- Sellers can earn income while waiting to buy stocks they like -> ✅✅✅✅✅I personally sell put option for this purpose.
- Buyers can secure a selling price even if the market crashes
I have shared a post on how to combine both Call and Put strategies — the famous Wheel Strategy [https://summarizeit.blog/2025/06/10/a-simple-way-to-generate-income-for-beginner/].
Summarize It My Way 