Put OptionA put option allows you to make money from a falling stock. It is like shorting stocks only you get leverage on your side. What the contract is is an agreement between 2 parties to be able to sell a stock at a given price on or before a given date. So for instance if you buy a $30 put on a stock you are able to sell the stock at $30 on or before a given strike date. As the stock falls further your put option becomes worth more. Max Loss Unlike shorting stock the most you can possible lose on a put option is the premium you paid for it. So if you paid $2 for the right to sell it at $30 the most you can lose is $2. Max Gain Your max gain would be if the stock went to $0. If the stock went to $0 you could buy it at $0 and sell it at $30. Of course that is very unlikely. But if the stock goes to $20 or $15 buying the $30 put can be very profitable. My Experience These options can be very profitable. The only problem is that they can also work against you. To use them correctly you want to trade them on stocks you are short term bearish on and you want to make sure the investment does not make up a significant amount of your portfolio.
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