What is a put?
In: Economics
If you buy a put you are buying the right to sell 100 shares of a certain stock at a predetermined price called the “strike price” , on a certain date. The hope of you are buying a put is that the price of the stock decreases and goes lower than the strike price so you sell at a profit.
A “put option” lets you sell a specific amount of a specific stock at a specific price. It’s basically an “insurance policy” you can buy in order to protect you from dropping price of a stock.
It’s easy to get in trouble trading options, even if you understand them. For most people who own stock, if you’re worried about your stock’s price dropping, often it’s better to forget about complicated options strategies, and instead simply sell the stock.
Since the market’s dropped due to coronavirus, I should add that for most people who participate in the stock market, often it’s better not to try to time the market. That is, sell your stock slowly as you need money (for example if you have a bunch of stock and need money to live on if you’re retired or unemployed). Don’t sell everything because coronavirus, because you might accidentally sell everything at the bottom, meaning you miss out on everything going up as the economy adjusts to the new normal and there’s a recovery.
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