Put option
TradingDefinition
A contract that gives you the right to SELL 100 shares of a stock at a pre-set price before a deadline. People buy puts for two reasons. First, to bet a stock will fall. Second, to insure shares they already own against a drop (called a protective put).
Your maximum loss is the premium you paid. Your maximum gain if the stock falls to zero is the strike price minus the premium.
Your maximum loss is the premium you paid. Your maximum gain if the stock falls to zero is the strike price minus the premium.
Example
You own 100 shares of Tesla at $400. You are worried it might crash, so you buy a put option to sell at $380 for $8 per share. If Tesla crashes to $300, the put lets you sell your shares for $380 anyway. You net $72 per share ($380 - $300 - $8), which softens most of the loss.