Long Put Option
| B/S | Strike | Type | Price |
|---|---|---|---|
| Buy 1 | $45 | Put | $1.29 |
| Net Debit | $129 | ||
A long put is the purchase of a put option.
The Max Loss is limited to the net premium paid for the option.
The Max Gain is uncapped as the market falls but limited to the strike price minus the stock price as the stock cannot trade lower than zero.
Characteristics
When to use: When you are bearish on market direction and bullish on market volatility.
Like the long call a long put is a nice simple way to take a position on market direction without risking everything. Except with a put option you want the market to decrease in value.
Buying put options is a fantastic way to profit from a down turning market without shorting stock. Even though both methods will make money if the market sells off, buying put options can do this with limited risk.
Long Put Option Greeks
Delta
Gamma
Vega
Theta
57 Comments
Stan August 18th, 2009 at 8:06pm
You don't need negative stock prices for unlimited profit potential. When expressed as a percentage, if the underlying stock goes to zero, your gain is infinite. If the current value of the stock is 50, you buy a put with a 40 strike and it goes to zero, your gain on the option is 40/0, or infinite percent.
sarbjit July 26th, 2009 at 3:37am
Dami,
yes, we can hedge a scrip to decresing in value through long put option.
Dylan January 4th, 2009 at 12:45pm
The profit potential of a long put option is only unlimited if negative stock prices exist.
Admin January 2nd, 2009 at 6:42am
Hi Yonis, not sure what you mean. Long refers to a purchase and Short a sale...not long and short term. Hope that helps.
yonis December 24th, 2008 at 2:59am
how i can differentiate put and call option under long and short term?
Admin September 25th, 2008 at 6:06pm
Yep, that's a strategy called a Protective Put. Please see the link under Bullish category.
Dami September 24th, 2008 at 10:37pm
Don't we use long puts to protect a stock we currently own from decreasing in value.
Add a Comment