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what does this statement regarding put options mean?
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the trader has purchased 1095 options, each of which is a contract which entitles him to sell 100 shares of cisco stock for $16 a share. he paid $71 for each contract (71 cents a share x 100) which is roughly $78k total. he will get $109,500 for each dollar below $16 cisco's stock is when he exercises it (he can buy the stock for the going rate and then sell it for $16 immediately), or he can sell the option itself to someone else for a similar gain (usually a little more, especially if the option has a long time until it expires). if the option expires when the stock is over $16/share, he gets nothing; i.e. the original $78k is lost. for reference, cisco's stock was trading at $17.14/share as of market close on march 18, 2010. the share price had recently been boosted by the recent news that they would be paying a quarterly dividend. it has been heading mostly downward since february 9, after they announced that they're not expecting profits to be as good as the analysts thought they would be: they claim that people aren't buying too much networking equipment just now, and they're also facing mounting competition from the likes of hp and juniper for switches, and aruba / hp / motorola for wireless devices. they may lose market share or need to cut prices, hurting profits. either way, there's certainly a real possibility of their stock going below $16 in the next few months, so people are willing to pay for those options. (disclosure: i work for aruba, who competes with cisco. i also own shares of aruba, possess assorted stock options and similar equity grants, and participate in the employee stock purchase program.  i also own shares in cisco indirectly through various mutual funds and etfs.)
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