Personal Finance / Investing Some offers on this page are from advertisers who pay us, which may affect which products we write about, but not our recommendations. See our Advertiser Disclosure. Put options explained: How trading puts pays off and when it doesn't Yahia Barakah · Personal finance writer Tue, August 11, 2026 at 3:00 PM GMT+2 19 min read A put is an options contract that lets one investor, the put buyer, lock in a price to sell an asset before a specific time.
On the other side of the contract, another investor, the put seller, agrees to buy the asset at that price if asked. The put buyer pays a premium, or an up-front fee, for the right to sell shares at that price (called the strike price) at any time before the contract expires. The seller takes the other side, collecting that premium and agreeing to buy the shares at the strike if the buyer exercises that right.
Explore options contracts with AlphaSpace Let's follow a Nvidia (NVDA) put option and walk through its potential outcomes for a buyer and a seller to see when they make a profit and when they don't. A put is a contract that gives its buyer the right, but not the obligation, to sell an underlying asset at a fixed price, known as the strike price, any time before the contract expires. The put buyer's right Buying the right to sell an asset at a fixed price comes with a per-share fee called the premium, paid up front to the put seller on the other side of the trade.
Since a standard stock option covers 100 shares, a $5-per-share premium works out to $500 total. Exercising that right, meaning using it to sell shares at the strike before the contract expires, is optional. That's why this type of contract is called an option.
If the asset never falls far enough to make selling at the strike worth it, the buyer simply lets the contract lapse. The only cost in that scenario is the premium already paid, which is the maximum a put buyer can lose. The put seller's obligation The put seller collects the premium up front in exchange for the obligation to buy the asset at the strike price if asked, but can still buy back the contract to cancel that obligation before it's exercised.
Once the buyer exercises, the seller has no more say. They must buy 100 shares at the strike price. How painful that obligation gets depends on preparation.
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