Put options are the opposite of call options, put options allow buyers to magnify the downward movement of stocks, turning a small price decline into a huge gain for the put buyer. Puts are one of the two basic types in options trading, along with call options.

A put option is a contract that gives the owner a right, but not the obligation, to sell a stock at a predetermined price (strike price) within a specific time period (time to maturity). The put buyer pays a premium per share to the put seller for that privilege.

Each contract represents 100 shares of the underlying stock, or the stock on which the option is based. Investors don’t have to own the underlying stock to buy or sell a put. At expiration, if the stock price is lower than the strike price, the put is worth money. If the stock price is higher than the strike, the put is worthless.

If the stock declines below the strike price before expiration, the option is in the money. The seller will be put the stock and must buy it at the strike price. If the stock stays at the strike price or above it, the put is out of the money, and the put seller keeps the premium and can sell puts again.

Using a rough calculation as example, if A Stock is trading at $180 at expiry, the strike price is $200, and the options cost the buyer $5, the profit is $200 – ($180 +$5) = $15.