A contract that gives its owner the right (not the obligation) to buy or sell an underlying asset at a specified price prior to or on a specified date. This future, predetermined price is known as the exercise price or the strike price. The put option buyer makes a profit if the stock price falls below the strike price before the expiration. The exact amount of profit is determined by the difference between the stock price and the strike price at expiration of at the closure of the option position. Options trading is a way many traders use to manage risk.