How it works
The buyer of a put option can profit by exercising the right if the underlying asset's price falls below the strike price, selling at a higher price than the market. Conversely, if the price rises above the strike price, the buyer can simply let the right lapse, in which case the loss is limited to the premium paid.
What to keep in mind
Put options are used both as a "hedge" against a decline in the value of held assets and in speculative trades that bet on a decline. Because the mechanics are complex and leverage is involved, it is important to be aware that gains and losses can be larger than expected depending on price movements.