An illustration to help you out grabbing the basic concept of put option in forex options trading:
Today, the value of pound sterling against US dollar is 1.5000. After you analyzed your chart thoroughly, you can view there is a good probability for GBP/USD to go downwards within 5 trading days.
You then buy a put option at a certain strike price, let's say 1.4800 (200 pips below current price). Your broker sets the premium (option cost) price at 5 pips US dollar.
Afterward the market, as you have predicted, moves within a tight range for several days and in the fourth day after you bought a put option GBP/USD finally goes lower to 1.4700. Done!
If you decide to exercise your put option at 1.4700, or at any price, then your trade in forex options trading is done. On the above illustration you will bring home your profit 90 pips. This profit is gained from 1.4800 (the strike price you got) subtracted by 1.4700 (current price) and the result is again subtracted by 0.0010.
