In which scenario would a trader typically exercise a put option?

A trader typically exercises a put option when the underlying asset’s price is below the strike price. This is because a put option gives the holder the right to sell the underlying asset at the predetermined strike price. If the market price of the asset drops below this strike price, the put option becomes more valuable as it allows the trader to sell the asset at a higher price than the market would otherwise allow.

For instance, if the strike price of a put option is $50 and the underlying asset’s market price falls to $30, exercising the put option allows the trader to sell the asset for $50, thus realizing a profit despite the market loss. Therefore, the scenario where the underlying asset's price is below the strike price is the ideal situation for exercising a put option, ensuring that the trader can limit losses or protect their investment effectively.