Put Options give the holder the right, but not the obligation, to sell an underlying share at the exercise price on or before the expiry date.
Example
Woolworths Limited (WOW) shares are trading at $27.00. Michelle chooses to buy an American-style three month Put Option over 5,000 shares with an exercise price of $27.00. As the buyer of this contract Michelle has the right, but not the obligation, to sell 5,000 WOW shares for $27.00 per share at any time until the expiry date. For this right, Michelle pays a premium to the seller, being Commonwealth Bank. In order to take up this right to sell the WOW shares at the specified price, Michelle must exercise the Option on or before expiry.
The Commonwealth Bank is obliged to buy the WOW shares for $27.00 per share if the Option is exercised. Like Call Options the seller of a Put Option receives and keeps the Option premium whether the Option is exercised or not.