Some of the most successful traders in the world, such as the ones featured in Jack Schwager's The New Market Wizards and Stock Market Wizards, and including, of course, the legendary Jesse Livermore, are so successful because they play both sides of the market. They make money in down markets as well as up markets. Livermore, for example, made $100 million when the market crashed in 1929. That would be well over a billion in today's dollars.

How did he do it?  He went short. This means simply that he borrowed stocks from his broker before the crash and sold them, then buying them back on the cheap after the stocks crashed to return them to his broker. You can do that?  Yes you can! But it is fraught with risk and only a skilled player should try it. If you are wrong on market direction on a short play, you could literally be wiped out if the stock you shorted rises substantially.

But there is a safer way to play the short side and that is with put options. What are options? The easiest way to understand them is through a couple of common examples you are probably familiar with.  You undoubtedly have made options trades yourself and are not aware of it because you didn't think of them that way.

First - there are two kinds of options: calls and puts. Now our examples.

Suppose you are shopping for a piece of furniture and you see something you like in a particular store. It's the only one in stock and you think it may be the one you want, but you're not sure. You want to shop around a bit more first.  But you're afraid the item might be sold before you come back.  So you go to the store clerk and ask if they'll hold it for you.

"You'll have to put a down payment on it," says the clerk. You pay the clerk $25 and the clerk agrees to hold it until the end of the day at which time you can buy it for the price agreed on. If you decide not to buy the item, the down payment is forfeited.

You have just place a call option. You have paid a premium for the right to buy an item at a predetermined price by an expiry period. That is all a call option is. Let's look at an example of a put.

You own a car and you insure it. You pay the insurance company a premium which gives you the right to claim the value of the car or the value of repairs necessary to restore the car to its present condition should you have an accident. If you do not have an accident, you do not make the claim and your premium is forfeited at expiry and you renew your insurance for another year.

You have just placed a put option.  You paid a premium for the right to "sell" your car at its current value to the insurance company should its value decrease due to an accident by the expiry date.

I'd guess that 99% of the people reading this have played options in one or both of the non-stock market forms noted above.  If you've ever paid a forfeitable down payment on anything, you've bought a call option.  If you've ever bought insurance, you've bought a put option.

In the stock market, options have a premium, a strike price (the price at which you have the right to buy the stock with a call option and at which you have the right to sell the stock with a put option) and an expiry date. Calls and puts are traded just like any other security.

With put options, you can play the downside of the market. You believe a stock will go down in value, so you buy a put option. It gives you the right to sell the stock at a particular price by the expiry date. You do not have to own the stock to buy a put.