When you are learning options, you'll definitely need to understand the put option. This is one of the two basic options contracts, with the other, opposite one being a call option.
A put option is a contract giving you the right, but not the obligation, to sell a specified amount of the undergirding asset at the price it goes for at the time of the contract's purchase, within a specified time (the life of the contract).
A put option gains in value as the price of the underlying asset depreciates in relation to the strike price. Let's imagine that you have a 09 September AlienWare 10 put option contract. What this means for you is that you have the right to sell 100 shares of AlienWare at $10 each until some time in September of 2009 (most of the time this is the third Friday of whichever month is in question). If shares of AlienWare were to fall to $5 and you made the decision to exercise your put option, you could buy 100 shares of AlienWare for $5 each on the open market and then sell the shares to the writer of your put option for $10 each, so that the final result is that you make a profit of $500 (minus the premium you paid to buy the contract in the first place).
You can also make money from selling (writing) a put option. Now, you would do this if you are anticipating that the underlying asset is going to continue to rise in price and would hit or break the strike price that you have in mind during the life of the contract. Whenever someone buys an options contract, they must pay a premium to the seller, or that is the writer of the contract--which in this case would be you. If the underlying asset's price does indeed do as you anticipated, the buyer will allow the contract to expire worthless, while you keep the premium as pure profit.
You can also use a put to enter into a "long put strategy", which is an often-preferred alternative to short-selling of stock, where you sell stock now and then buy it back it back for a profit if the stock's price falls. Put options contracts can be seen as better than short selling for their better liquidity, better leverage, and cap on the maximum loss since you can't lose more than the premiums you paid.
There is a great deal that you can do strategically with a put option. The best way for you to learn the ins and outs of put options is to subscribe to a quality options advisory newsletter.
