Options Academy
Put Options 101: Rights, Moneyness, and Intrinsic Value
A put gives the right to sell at a strike price. This post explains put moneyness, intrinsic value, and how put payoff differs from calls.
What a Put Option Actually Is
A put option gives the holder the right (not obligation) to sell the underlying at the strike price before expiration.
So a long put is generally bearish: you benefit when the stock falls enough.
A contract name must include option type. “XYZ July 50” is incomplete unless you specify call or put.
Moneyness for Puts (Opposite Direction of Calls)
For puts, in-the-money (ITM) means stock is below strike. Out-of-the-money (OTM) means stock is above strike.
Example: if stock is 45, a 50 put is ITM, while a 50 call is OTM.
A useful universal definition: an option is ITM if it has intrinsic value.
Put ITM Condition
Stock < Strike
Put OTM Condition
Stock > Strike
Put Intrinsic
max(Strike - Stock, 0)
Call Intrinsic
max(Stock - Strike, 0)
Intrinsic vs Time Value (Worked Example)
Suppose XYZ is 47 and the XYZ July 50 put trades at 5.
Intrinsic value = 50 - 47 = 3. Therefore time value = 5 - 3 = 2.
For an ITM put, a practical shortcut is: Time Value = Put Price + Stock Price - Strike.
Stock Price
47
Put Price
5
Intrinsic
3
Time Value
2
How Long Put Payoff Behaves at Expiration
If stock is above strike at expiration, put expires worthless (max loss is premium paid).
If stock drops below strike, put gains intrinsic value point-for-point as stock falls further.
This creates convex downside exposure with limited loss and large potential upside in severe declines.
Long Put P/L at Expiration (Example: Buy 50 Put for 5)
- profit
Key takeaways
- A put is the right to sell; long puts are generally bearish.
- Put moneyness is opposite of calls: ITM when stock is below strike.
- Intrinsic for puts is Strike minus Stock (if positive).
- Long put risk is capped at premium paid, with strong downside convexity.
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Series
Put Option Basics Masterclass
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