Booyah Breakdown: Know Your Options, Part 2

In either case, the options folks say you're buying a protective put -- a.k.a. a married put -- because you own the underlying shares.

Remember, a put gives the holder the right to sell an asset at a certain price within a specific period of time. So if the stock price falls below the strike price before the expiration of the option, you could exercise your put option and sell your shares at the strike price.

If the stock's price jumps above the strike price, you would just let the option expire worthless, losing only the option price -- your insurance premium.

We need an example. Let's say you own Proctor & Gamble , which has been hovering around $63, and you believe the market is shifting into a bearish phase. However, since you bought the stock at $53 back in April, you'd like to protect your profits and try to hold the issue for at least a year before you sell.

So consider buying the PG Apr $60 put, which costs around $1.90, says Tom Gentile, senior vice president & chief options strategist at Optionetics, an options-education site. This, in essence, ensures you a sale price of $58.10, which is the strike price -- $60 -- minus the premium paid -- $1.90.

Remember, each option covers 100 shares, so you'll need to cough up $190 to protect 100 shares of PG. But that put will enable you to sell your shares at a strike price of $60 if the stock falls.