Put option example: the full math, including the endings where you lose
A put option gives its buyer the right to sell 100 shares at a set strike price. Worked example: with a stock at $50, a $48 put bought for $1.50 ($150 per contract) is worth $400 if the stock closes at $44 at expiration — and expires worthless above $48.
When people search for a put option example, they usually mean one of two trades: a speculative put (you think a stock is going down and want to profit from the drop) or a protective put (you own shares and want a floor under them). This page works both, in full, including the endings where the put loses money even though the stock actually fell. If you want the definition first, start with what a put option is.
Example 1: the speculative put
Setup: stock XYZ trades at $50.00. You expect a drop over the next month, so you buy one put with a $48 strike expiring in 30 days for a premium of $1.50 per share. One contract covers 100 shares, so your total cost — and your maximum possible loss — is $150.
Two numbers define this trade at expiration:
- Intrinsic value: a put is worth max(0, strike − stock price). See intrinsic value for why everything above that number melts away by expiration.
- Breakeven: strike − premium = $48.00 − $1.50 = $46.50. The stock has to close below $46.50 at expiration for this trade to make money — not just below $50.
Three endings for the same trade
| Ending | Stock at expiration | Put value | Profit / loss | Return on $150 |
|---|---|---|---|---|
| A: big drop | $44.00 | max(0, 48 − 44) = $4.00 → $400 | +$250 | +166.7% |
| B: fell, but not enough | $47.00 | 48 − 47 = $1.00 → $100 | −$50 | −33.3% |
| C: closed above strike | $48.75 | $0 | −$150 | −100% |
Ending B is the one that surprises beginners. The stock fell from $50 to $47 — a 6% decline, exactly the direction you predicted — and the trade still lost a third of its cost. You paid $1.50 for the put; at expiration it was worth only its $1.00 intrinsic value. Being right about direction is not the same as beating your breakeven.
Ending C is worse: the stock dropped 2.5% (from $50.00 to $48.75), yet the put expired worthless because $48.75 is above the $48 strike. A 100% loss on a correct directional call.
When puts lose even though you were "right"
- Magnitude. The move has to clear your breakeven (strike − premium), not just go your way. In ending B the drop was real but too small.
- Time. All else equal, each passing day erodes the extrinsic portion of the premium — that is theta decay. A stock that falls the week after your expiration pays you nothing.
- Volatility. If you buy a put ahead of a known event, implied volatility is often inflated; after the event it can collapse. That IV crush can shrink the put's price even while the stock drifts lower.
Long options can lose 100% of the premium paid, as ending C shows, and studies of retail options traders consistently find most lose money over time — see the sourced numbers in our retail options profitability statistics. This page is education and research, not financial advice, and we are not a registered adviser.
Example 2: the protective put
Setup: you own 100 shares of XYZ bought at $50.00 ($5,000 position). You want to keep the shares but cap your downside, so you buy one $45 strike put for $1.20 per share ($120 — about 2.4% of the position).
- Crash to $38: shares lose $1,200. The put is worth max(0, 45 − 38) = $7.00 → $700, or +$580 after its $120 cost. Net result: −$620 instead of −$1,200 unhedged. At any price below $45 at expiration, the loss is the same fixed (50 − 45) × 100 + 120 = $620, or 12.4% of the position, no matter how far the stock has fallen by then.
- Rally to $56: shares gain $600, the put expires worthless. Net: +$480. The insurance cost you $120 of upside.
- Flat at $50: shares unchanged, put expires worthless. Net: −$120 — the pure cost of insurance for that period.
That is the honest trade-off: a protective put converts an open-ended paper loss into a known, capped one, and it charges you the premium in every ending — including the ones where you did not need it. Buy protection repeatedly and the premiums compound into a real drag.
The three formulas this page runs on
- Put intrinsic value = max(0, strike − stock price)
- Long put breakeven at expiration = strike − premium paid
- Protective put maximum loss = (share cost − strike) × 100 + premium paid
Want to test your own strikes and premiums? The free options profit calculator draws the payoff for any put before you risk a dollar. And if a single long put feels expensive, a bear put spread is the defined-risk way to cheapen the same bearish view — with its own trade-offs.
Common questions
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Last updated 2026-07-15 · ClaudeQuantAlgo Research Desk · research and education only.
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