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What is a put option?​

A put option gives the buyer the right to sell an asset at a specific price by a certain date. It’s like insurance—if the asset’s price drops, the put increases in value.

Example: 

  • An investor buys a put option on a security with a strike price of $100. 
  • If that security falls to $80, the investor can still sell it for $100, effectively avoiding the $20 loss. 
  • However, if an options contract is “out of the money,” or the contract has no intrinsic value because it would not be profitable to exercise it immediately, when the option contract expires, then the investor would lose their premium (or the amount paid initially for the contract). 

Structured outcome ETFs, like the ARK DIET Buffer ETFs, use put options to create a buffer, reducing the amount of loss an investor experiences in a declining market.