Put Option

A put option is a type of financial contract that gives its holder the right—but not the obligation—to sell an underlying asset at a set price (the strike price) before a specific expiration date. Investors commonly use put options to protect against potential declines in an asset’s price (hedging) or to speculate that the price will go down.

A put option is considered "in the money" when the asset’s current market price (spot price) is below the strike price. In this case, exercising the put option allows the holder to sell the asset for more than its market value. For instance, if you own a put option for 1 bitcoin at a $15,000 strike price, and bitcoin’s market price drops to $10,000, you could use your option to sell at $15,000. This lets you potentially buy bitcoin at $10,000 and profit $5,000 per coin (minus the cost of the option).

However, you only make an overall profit if this gain is greater than the premium (the price paid for the option).

Put options can be traded on the open market before they expire—often at a higher price if the asset’s value has fallen. This lets traders benefit from price movements without actually selling the underlying asset. However, if there aren’t enough buyers and sellers (low liquidity), it may be hard to resell the option quickly or at a good price.