...Let me illustrate - Lets say you were an owner of a stock at a price of 20 dollars and this stock had run up on good news of a possible drug approval to 70 dollars - but you had not sold the stock out and the stock plunges steadily to 20 dollars again. Had you bought a put option at 70 for example and paid 5-7 dollars for that right to sell the stock at 70, this decline in the stock would not have hurt you. Your 70 put option with the stock at 20 has 50 dollars of intrinsic value to you... if you had 1000 shares that means 50,000.00 back to you that would have been lost. ...