Put = the option to sell a security at a fixed (strike) price. Exercise the option when the market price is higher than the strike price, and your profit is the difference between the market price and the strike price (less the premium you paid for the option, if they throw that in the problem). You make money selling a security at a higher price than the market price.
Call = the option to buy a security at a fixed (strike) price. Exercise the option when the market price is lower than the strike price, and your profit is the difference between the market price and the strike price (less the premium you paid for the option, if they throw that in the problem). You make money buy buying a security cheaper than the market price.
If the market price does not move up or down in your favor (as an option holder), you let the option expire and lose nothing except the price you paid for the options themselves.
This is silly, but I had a double major in Finance, and struggled with options at first also, but the way I was able to remember the basics forever was as follows:
CB
PS
CB = Call/Buy >> C and B are close together in the beginning of the alphabet. Call = option to Buy
PS = Put/Sell >> P and S are close together at the end of the alphabet. Put = option to Sell
Gosh, I feel like an idiot every time I try to explain my memory tricks, but I hope that some of you may find this helpful!
.