A put option is a type of option on a futures contract. The purchase of a put option gives the buyer the right to sell a futures contract at a designated strike price before the contract expires.
In the commodity markets, buying put options is considered a lower risk way to trade the markets. When you buy a put option, your risk is limited to the price you pay for the put option (premium) plus any commissions and fees. Buying or selling a futures contract exposes a trader to virtually unlimited losses.
Most traders do not exercise put options (or convert into a futures contract), instead they will close a put option sometime before it expires.
You can also sell (or write) put options. This process exposes the option writer to virtually unlimited risk. You are essentially taking the other side of the trade that a buyer of a call option makes.
You might pay a premium of 20 cents or $1,000 (.20 x 5,0000 bushels) for the put option. If the price of the option moves to 30 cents, you might sell the option for a profit.
