Put options are basically the right (but not the obligation) to sell an asset. If an investor owns an asset, they can thus buy put options to hedge against short-term downwards movements.
Here is an example from the video:
Trader is long 100 shares of SLV, which he/she has bought at $18.32
Trader buys a put option on those shares, with a strike price of $18. That means the trader has the right — but not the obligation — to sell those shares at a price of $18.
Each option has an expiration date. The expiration date on this option is 1 month away. So, the trader has the right, but not the obligation, to sell 100 shares of SLV at $18 per share within one month’s time (before the option expires.
For this right, the trader pays $0.33 per share, plus commission. So, it costs the trader $33 + commission for this right.
From this example we can see the components of a put option:
1. Strike price
2. Expiration date
4. Option price
Options with expiration dates that are further away are generally more expensive.
The higher the strike price, the more expensive the put option is. In the aforementioned SLV example, a put option with a strike price of $20 will generally be considerably more expensive than a put option with a price of $15. Part of the science of trading put options is evaluating the trade off between buying an expensive put with a higher strike price versus a less expensive put with a lower strike price.