[glalonde]

hold up, how does that figure? I thought you could only get up to the amount invested back, which is why it is a really not great idea. Investing $3k now might net you up to $3k if the stock hits 0, but it could triple in which case you lose $6k.

Bounded upside, infinite downside. I'm sure it's more complicated but what am I missing?

[tomp]

Options aren't "an investment", think of them more like "gambling". So the 3k is the "fee" (non-refundable), and the "winnings" depend on the price of the stock at a predefined date.

In this case, the parent would buy a put option, which would pay out only if, and proportionally to the amount that, the stock is lower than some predefined price (usually the present price with a small delta).