Put Options
A contract giving the buyer the right to SELL 100 shares of the underlying at the strike price before expiration; the buyer is bearish (or hedging a long position), and the writer is obligated to buy if exercised.
The exam loves to make you pick the put over short-selling a stock as the way to express a bearish view: the “tell” is a clue about defined risk, because a put buyer’s loss is capped at the premium while a short-seller faces theoretically unlimited loss and must borrow shares plus reimburse the lender for any dividends. Expect plug-in math too — compute intrinsic value (strike − market, never below zero). Watch the direction trap: a put gains intrinsic value as the stock falls, the mirror image of a call, which gains as the stock rises.
The classic confusion is long put versus short (written) put: the buyer is bearish and pays premium; the writer is bullish-to-neutral, collects premium, and is obligated to buy 100 shares at the strike if assigned. Don’t confuse a speculative long put with a protective put, where the same contract hedges stock you already own. Memory hook: “put it to me” — exercising a put forces the writer to take the shares.
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