What is a Put Option?

A put option gives the buyer the right, but not the obligation, to “sell” the underlying asset at a predetermined strike price on or before expiry. For example, suppose a trader buys a put option on a stock with:

• Strike Price: ₹1,000
• Premium: ₹35 per share
• Lot Size: 100 shares
• Total Premium Paid: ₹3,500 (100 shares x ₹35 per share)

If the stock price falls to ₹900 at expiry, the put has an intrinsic value of ₹100 per share. In this case, the potential profit could be ₹6,500 [(₹1,000 – ₹900 – ₹35) × 100] 

Whereas, if the stock price remains at ₹1,000 or above at expiry, the put expires worthless and the trader loses the ₹3,500 premium paid. Note that the break-even price is ₹965 (calculated as the strike price minus the premium).

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