A put option, often simply labelled a "put", is a financial contract between two parties, the buyer and the seller of this type of option. The buyer of the put option has the right, but not the obligation to sell an agreed quantity of a particular asset, commodity, currency or any agreed financial instrument (the underlying) to the seller of the option at a certain time (the expiration date) for a certain price (the strike price). The seller (or "writer") is obligated to buy the asset, commodity, currency or any agreed financial instrument if the buyer decides to sell. The buyer pays a fee to the seller (called an option premium) for this right.
The buyer of a put option purchases it in the hope that the price of the underlying instrument will fall in the future. The seller of the put option expects that this will not happen.
Put options are most profitable for the buyer when the underlying instrument moves down below the strike price by more than the premium paid. The buyer's maximum loss is limited to the option premium.
The put writer does not believe the price of the underlying security is likely to fall below the strike price. The writer sells the put option to collect the premium.
A European put option allows the holder to exercise the option (i.e., to sell) only on the option expiration date. An American put option allows exercise at any time during the life of the option.