Options mechanics
What is a Put Option and how does it profit from downward underlying price velocity?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
A put option gives the buyer the right to sell 100 shares at the strike price before expiration, so its value rises as the underlying stock price falls below the strike.
How it works
Put buyers pay a premium for downside exposure with risk limited to that premium, profiting when the stock drops enough to exceed the premium cost by expiration or earlier through resale.
An example
Buying one XYZ 80 put for $3.00 costs $300 and profits below $77 per share at expiration, since intrinsic value grows dollar for dollar as price falls further.
Risk & limitations
Puts also decay with time like calls, and a stock that falls slowly or stays flat can still cause the put to lose most of its premium value.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.