1. What it is
Pay a premium to buy one put option.
2. Why use it
Expect the stock to fall before expiration, or use the put to protect an existing stock position.
3. How the numbers work
SPY · Teaching example · Reference price $500
All option legs have the same expiration. Premiums are per share. Each standard contract represents 100 shares.
| Side | Option type | Strike | Quantity | Premium |
|---|---|---|---|---|
| Buy | Put | 500 | 1 | 5 |
- Net premium
- −5 × 1 = -$5.00 × 100 = -$500.00
- Maximum expiration profit
- $49,500.00
- Maximum expiration loss
- $500.00
- Expiration breakeven
- $495.00
Expiration scenarios
| Underlying at expiration | Profit / loss |
|---|---|
| 495 | $0.00 |
| 500 | -$500.00 |
Illustrative prices, before fees. Expiration payoffs exclude early assignment and changes in time value or volatility. Editing strikes keeps the entered premiums; no market quotes are fetched.
Explore this example ↗4. How it changes
A falling stock price and rising implied volatility generally help. Time passing generally hurts, with other factors unchanged.
5. What to watch for
The option can lose the entire premium paid. Its maximum profit is the strike minus premium, reached if the stock is zero at expiration.
A small stock-price fall may not cover the premium and time decay. Expiration breakeven is not a fixed exit price before expiration; holding through expiration can lead to automatic exercise.