If you own 100 shares of a company and fear a market dip, buying a put acts as a floor. If the stock plummeted, you could still sell your shares at the strike price, limiting your total losses. 2. Speculation (Profiting from a Drop)
Buying a put option gives you the right, but not the obligation, to sell a specific stock at a predetermined price (the strike price) before a certain date (the expiration). buying put options explained
Imagine Stock XYZ is trading at $100. You buy a $95 Put Option for a $2 premium (total cost $200, as one contract covers 100 shares). If you own 100 shares of a company
When you buy a put, you are "long" the option and "short" the underlying stock's direction. The upfront cost you pay to buy the option. Speculation (Profiting from a Drop) Buying a put