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Right! But you must be careful, he was BUYING puts. He could also "Sell to open" a put contract (ie "write" the contract) in which case he is hoping the price won't drop below the strike price. Writing covered calls can give an easy 1 or 2%/month return on your stocks but I have never tried...

Options (puts and calls) are like side bets at the twoup. Pat nudges the guy beside him and sys "Bet you a fin it's heads." and Mick says "Your on". This bet is not part of the main game, nor are options. In the above example Pat "writes" the option and Mick buys it. The option's "life" is...