Ace the CMA 2026 Challenge – Unlock Your Accounting Superpowers!

When the market price of the underlying asset falls, the value of put options increases. This is because a put option gives the holder the right to sell the underlying asset at a predetermined strike price. Therefore, if the market price drops below this strike price, the put option becomes more valuable. The holder can either sell the option at a higher premium or exercise it to sell the asset at the higher strike price, realizing a profit compared to the current market value.

As the asset's price decreases, the potential profit from exercising the put option increases, which directly correlates to the rise in the option's overall value. This dynamic is a fundamental principle of options trading and demonstrates the hedge that put options provide in a declining market.