Put Option

An put option is a contract giving someone the right, but not the obligation, to sell a specified amount of an underlying security (i.e., shares in a corporation or units in an LLC) at a specified price within a specified time period if a certain event occurs. A put option is the opposite of a call option, which gives the holder the right to buy the underlying security upon the occurrence of an event. The operative event is referred to as the “triggering event,” in the case of both a put option and a call option. Put options are helpful to their holders in that they give the holders the opportunity to buy a security at a lower price, by allowing the holders to sell a security at the occurrence of a triggering event, then using the cash received from the sale to buy the security back at a later time, assuming that the stock continues to fall in price. Of course, because it is an assumption, there is no guarantee. While call options are common as part of employee stock option plans used by startups, since key employees are incentivized by being given the opportunity to buy company stock at a later date at a discount, put options are reserved for the world of finance and equity trading.