Long Put Strategy
Buy a put option to profit from bearish price movement or hedge existing positions.
Strike price - premium (if stock goes to zero)
Premium paid
Strike price - premium paid
bearish
📖 What is the Long Put?
A long put gives you the right to sell 100 shares at the strike price before expiration. You profit when the stock falls below the strike minus the premium paid. Long puts are used for bearish speculation or as portfolio insurance to hedge long stock positions.
🔧 How to Set Up
BUY PUT @ ATM or OTM
Buy to open a put option at chosen strike
💡 Example Trade
Underlying: TSLA @ $250
Buy 1 TSLA $240 put for $8
$23,200 (if TSLA goes to zero)
$800 (premium paid)
$232 ($240 - $8)
📊 Greeks Profile
Negative (-0.3 to -0.7 typically). Profits as stock falls.
Positive. Delta becomes more negative as stock falls.
Negative. Time decay works against you.
Positive. Benefits from rising implied volatility.
❓ Frequently Asked Questions
Long put vs shorting stock - which is better?
Long puts have limited risk (premium paid) while shorting stock has unlimited risk. Puts also require less capital. However, puts lose value over time while short stock doesn't have time decay.
When should I buy puts for protection?
Buy protective puts when you're concerned about downside risk but don't want to sell your stock. They act as insurance, limiting losses if the stock drops significantly.
Pros & Cons
- ✓Limited risk (premium paid)
- ✓Large profit potential if stock drops significantly
- ✓Can hedge existing long positions
- ✓No margin required
- ✗Loses value from time decay
- ✗Entire premium can be lost
- ✗Stock must move significantly to profit
- ✗IV crush can hurt position
Ideal Conditions
- →Bearish outlook on the underlying
- →Want downside protection on long stock
- →Expecting significant downside move
- →IV is relatively low
💡 Pro Tips
- Give your thesis enough time - don't buy weeklies
- Consider ATM puts for higher probability of profit
- Use as portfolio hedge during uncertain times
- Watch IV - avoid buying during elevated volatility