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Options, Risk Math, and Psychology · Options Anatomy

What a put option grants you

Explain what a put option is and what right it gives the buyer.

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Options, Risk Math, and Psychology

Options Anatomy

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Lesson 2 of 75Options, Risk Math, and PsychologyOptions Anatomy

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Explain what a put option is and what right it gives the buyer.

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A put is a right to SELL at a fixed price

A put option is the bearish twin of a call. The buyer of a put gets the right — not the obligation — to SELL a stock at the strike price before expiry. They pay a premium upfront for that right. The seller of the put collects the premium and takes the matching obligation: if assigned, they have to BUY the stock at the strike, even if the stock is now trading way below it.

Wick holds a shield labeled Put that blocks falling red candles marked Stock crash, keeping his shares covered, showing how a put can insure stock you own.Stock crashShares coveredPut
Wick saysA protective put works like insurance: if your stock crashes, the put pays out.

Plain-English example. TSLA trades at $250. You think it's going to dump to $220 after earnings. You buy one TSLA $240 put expiring three weeks out for $4.00 per share. That's $400 total (one contract = 100 shares). At expiry, if TSLA is at $215, your right to sell at $240 is worth $25 per share. You make $2,500 minus the $400 premium, so $2,100 net profit. If TSLA stays above $240, the put expires worthless and you lose the full $400.

Wick shows a calculator reading $2,100 next to the formula ($240 - $215) x 100 - $400, working the lesson's TSLA put example step by step.($240 - $215) x 100 -$400$2,100
Wick saysAt $215, a $240 put is worth $25 a share; minus the $400 premium leaves $2,100.

Why traders buy puts instead of shorting the stock outright. Shorting requires margin and has theoretically unlimited risk — if the stock goes up instead of down, you keep bleeding. A long put has defined risk (the premium). If you're wrong, you lose what you paid and nothing more. Puts are a cleaner way to express a bearish view with smaller capital and known max loss.

Two cards side by side: Long put, max loss is the premium you paid, and Short stock, losses keep growing if price rises, comparing the two bearish choices.Long putMax loss is thepremium youpaidShort saleIf price rises,losses keepgrowing
Wick saysA long put has a known max loss; shorting the stock does not.

Recap: a put = the right to sell at a strike by an expiry, for a premium. Max loss = premium paid. Profit = grows as the stock falls below the strike. Useful for bearish bets and as portfolio insurance.

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1. You buy a $240 put on TSLA for $4.00 premium. At expiry TSLA is at $215. Roughly what's your net P&L?

2. What's a 'protective put'?

3. Why might a trader buy a put instead of shorting the stock?

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