A long put is when you buy a put option, betting the stock will fall below your breakeven point by expiration.
How It Works
Apple at $150:
- Buy a $150 put for $5 ($500 total)
- Breakeven: $145 ($150 strike - $5 premium)
If stock falls to $140, your put is worth at least $10. You make $5 ($500 profit) minus commissions.
If stock rises to $160, your put expires worthless and you lose $500.
Risk Profile
Maximum Loss: Premium paid ($500)
Maximum Profit: Strike price × 100 - premium paid = $14,500 (stock falls to zero)
Breakeven: Strike price - premium paid
Why Use It
- Limited risk (you can only lose the premium)
- Profits from stock decline without short selling
- Works in bear markets or on individual stocks
- Can hedge long stock positions
Challenges
- Time decay (theta) works against you
- Need bigger moves to profit than owning stock
- IV crush after earnings destroys value
- Most long puts expire worthless
When to Use
- Before negative catalysts
- When stock is breaking support
- To hedge long positions
- When entry cost is low
Related: Long Call, Bear Put Spread, Protective Put
