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A financial contract that gives the buyer the right, but not the obligation, to sell an underlying asset at a specified strike price before a certain expiration date.
Buying a put option is a bearish bet or a form of portfolio insurance. If you buy a put on stock XYZ with a $50 strike price for a $2 premium, you profit if the stock falls below $48 (the strike minus the premium). Your maximum loss is limited to the $2 premium, while your potential profit is substantial (if the stock goes to zero, you profit $48 per share). Put options are commonly used to hedge existing long stock positions. For example, owning 100 shares of a $50 stock and buying a $45 put creates a "floor" at $45, limiting your maximum loss to $5 per share plus the put premium.