The basic premise of an option is promising to either buy (a call option) or sell (a put option) for a set amount (strike price) on or before the expiration date.

One important thing: you can both buy (you have the power to decide when and whether to exercise the option) or sell (you are bound by the option when someone exercises) both kinds of options.

So how it works is you look at ABC selling for $44 and say "I want to be able to buy 100 shares of ABC at $45 until 1/1/2017." And someone sells that option to you for $50. You're actually paying for the guarantee that someone will sell ABC at that price to you prior to that date. Which means you're betting it will go up. If it goes up to $50/share prior to January, you exercise the option and bank $450 (you bought for $45 and sold for $50). If it doesn't go up or goes down, you let the option expire and all that happened was you lost the initial $50.

So you got exposure on the stock and the ability to sell it for a profit if it goes up, and it cost you a lot less than if you'd actually bought the stock.

So why would you buy a put option? Kind of the opposite, you think it will go down, and you want a guarantee to be able to sell the stock at the current price when it goes down. So ABC is selling for $50 and you think it'll go back down. You pay someone $50 for a guarantee they'll buy the stock at $50 anytime prior to 1/1/2017. If it goes down to $45, you buy 100 shares at $45 off the market and exercise your put option to sell them at $50. It's kind of like a short sale except over a longer period and exposing you to much less risk.

So why would you ever want to be the seller of an option?

Well, the simplest explanation is that if you think it'll go the other way from the buyer. You think it'll go down, so you sell a call option at $45, promising to sell it for $45 to the buyer. If the stock goes down, the buyer won't want to buy it for more than the market price, and won't exercise the option, and you got whatever you sold the option for

Same thing, if you think the stock will go up you'd sell a put option, promising to buy it from someone at $45. If it goes up, the buyer won't want to exercise the option and sell to you at lower than the market price.

The most important thing to remember is that when you buy put means you think it will go down, call means you think it will go up; and when you sell put means you think it will go up and call means you think it will go down.