Long Put

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The Long Put option strategy is a basic strategy in options trading where the investor buy put options with the belief that the price of the underlying security will go significantly below the striking price before the expiration date.

Put Buying vs. Short Selling

Compared to short selling the stock, it is more convenient to bet against a stock by purchasing put options as the investor does not have to borrow the stock to short. Additionally, the risk is capped to the premium paid for the put options, as opposed to unlimited risk when short selling the underlying stock outright.

However, put options have a limited lifespan. If the underlying stock finishes at or above the strike at expiration, the put expires worthless. An earlier move below the strike does not guarantee profit if the stock subsequently recovers before the position is closed.

Limited Profit Potential

Since stock price in theory can reach zero at expiration date, the maximum profit possible when using the Long Put strategy is only limited to the striking price of the purchased put less the price paid for the option.

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Limited Risk

Risk for implementing the Long Put strategy is limited to the price paid for the put option no matter how high the stock price is trading on expiration date.

Breakeven Point(s)

Example

Suppose the stock of XYZ company is trading at $40. A put option contract with a strike price of $40 expiring in a month's time is being priced at $2. You believe that XYZ stock will fall sharply in the coming weeks and so you paid $200 to purchase a single $40 XYZ put option covering 100 shares.

Say you were proven right and XYZ stock falls to $30 at expiration. The $40-strike put has $10 per share of intrinsic value, or $1,000 for a standard 100-share contract. Subtracting the $200 premium gives an $800 profit before costs. Selling to close while the market is open depends on an executable quote; exercise and settlement follow the contract and broker procedures.

However, if you were wrong in your assessment and the stock price had instead rallied to $50, your put option will expire worthless and your total loss will be the $200 that you paid to purchase the option.

These examples use standard U.S. stock options with a 100-share contract size and matching expiration dates. Related structures can use ETF, index or futures options, but contract multipliers, exercise style, settlement and the underlying price range can differ. A stock’s zero price floor must not be assumed for every futures contract.

Commissions

For ease of understanding, these examples exclude commissions, fees and financing costs. Include all costs when comparing an actual position; there is no universal commission amount.

For active traders, transaction costs can consume a significant part of returns. Compare the full commission and fee schedule, exercise and assignment charges, and bid-ask spreads. The cost of entering and closing every leg matters.

Similar Strategies

The following strategies offer related market exposure. Compare their construction, cost, maximum loss and assignment obligations; a similar outlook does not mean identical risk.

Put Backspread

Protective Call

Out-of-the-money Puts

Going long on out-of-the-money puts maybe cheaper but the put options have higher risk of expiring worthless.

In-the-money Puts

In-the-money puts include intrinsic value and generally cost more than lower-strike puts on the same stock with the same expiration. Their time value is the premium minus intrinsic value; it is not guaranteed to be lower in every comparison.

Before expiration and assignment

The diagrams and worked outcomes describe expiration payoffs, not an option’s market price before expiration. Time decay, implied volatility, rates, dividends and bid-ask spreads affect early closing values. American-style short options can be assigned early; a protective long option is not automatically exercised when a short leg is assigned. Closing or exercising one leg can change the remaining position’s risk.