What is the main feature of a put option?

The primary feature of a put option is that it grants the holder the right to sell shares at a specified price, known as the strike price, before or at the expiration date of the option. This is particularly beneficial for investors who anticipate that the price of a stock will decline; by holding a put option, they can sell their shares at a predetermined price, thus limiting their potential losses.

Unlike other options, such as a call option, which allows the holder to buy shares, a put option serves as a form of insurance against a drop in stock prices. This can be particularly useful during market downturns or for hedging purposes in an investment portfolio. Additionally, put options can also be used for speculation, where an investor might profit if the stock price falls below the strike price.

Understanding put options is crucial for effective risk management and strategic trading in the stock market, making it an essential component of personal financial management.