Put Option Law and Legal Definition

Put Option is an option to sell an item at a preset price at some time in the future. With a put option, the grantor (or seller) of the option is required, if the buyer so desires, to purchase at the expiration date the underlying security put to him by the buyer at the strike price. In a put option, the buyer is "bearish" on the underlying security. He is betting that the market price of the underlying security will fall below the strike price by the expiration date. In that case, he will "put" the security to the option writer, who must pay the higher strike price. [Andros v. Commissioner, T.C. Memo 1996-133 (T.C. 1996)].