Final answer:
Buying a put option allows an investor to profit from a price decrease of the owned security, acting as a hedge against potential losses. This strategy does not aim for direct profit from a price increase but rather provides protection.
Step-by-step explanation:
When an investor buys a put option on a security they own, it is often used as a form of insurance against a drop in the price of the security. This strategy is a way for investors to protect themselves and is known in the financial world as hedging. A put option gives the investor the right, but not the obligation, to sell a specified amount of an underlying security at a predetermined price within a specified time frame. If the value of the underlying security falls, the value of the put option generally increases, thereby allowing the investor to sell the security at the higher strike price specified in the option contract.
Buying a put option on a security one currently owns allows the investor to profit from a price decrease of the underlying asset. While one may hope that the stock's value increases, owning a put option provides a safety net if the opposite occurs. This approach does not provide a fixed income, convert short positions to long positions, or directly profit from an increase in the underlying asset's price. However, it does ensure that the investor can lock in a sale price, which could mitigate losses if the security's market price falls below the strike price of the put option.