A put option is a contract that gives the owner the right, but not the duty, to sell–or sell short–a pre-determined quantity of an underlying asset at a pre-determined price within a pre-determined time period. The striking price is the predetermined price at which a buyer of a put option can sell.
Stocks, currencies, bonds, commodities, futures, and indices are all traded as underlying assets for put options. A call option, on the other hand, offers the holder the right to buy the underlying at a set price, either on or before the options contract’s expiration date.
A put option is a financial tool to bet against a company. Instead of selling the underlying stock (which is called a short), one can buy a put to profit when the underlying stock declines. Buying a put limits your downside to the price that you payed to acquire that put. However, shorting a stock theoretically has unlimited downside (since the stock can go up many fold). As such, buying a put option is a less risky way to bet against a company.
Buying and selling puts and their counterparts (which are called calls) are often used by traders to hedge their portfolios. Typically options (call and put) cost less than the underlying equity and hence one is able to take a bigger position.