Long Put Strategy
Buy a put option to profit from falling stock prices with limited risk.
What is a Long Put?
A Long Put is a bearish strategy where you buy a put option, giving you the right to sell 100 shares at a specific strike. You profit as the stock falls below your breakeven. Max loss is limited to the premium paid; max profit occurs if the stock goes to zero.
When to Use a Long Put
Use a Long Put when you expect a stock to fall significantly. Works well as portfolio insurance against a bearish market. Best entered when IV is low and you have a clear catalyst (earnings, economic data, technical breakdown).
Key Formulas
- Max Profit
- (Strike - Premium) × 100 (at stock = $0)
- Max Loss
- Premium paid × 100
- Breakeven
- Strike price - Premium paid
Example Trade
Buy 1 SPY $420 Put for $3.50. Max loss: $350. Breakeven: $416.50. Profit increases as SPY falls.
Common Mistakes to Avoid
- Buying puts during earnings without understanding IV crush
- Choosing strikes too far OTM (low POP)
- Not scaling out as puts become profitable
- Holding to expiration unnecessarily (exit early on profit)
Related Strategies
Frequently Asked Questions
What is a Long Put?
A Long Put is a bearish strategy where you buy a put option, giving you the right to sell 100 shares at a specific strike. You profit as the stock falls below your breakeven. Max loss is limited to the premium paid; max profit occurs if the stock goes to zero.
When should I use a Long Put?
Use a Long Put when you expect a stock to fall significantly. Works well as portfolio insurance against a bearish market. Best entered when IV is low and you have a clear catalyst (earnings, economic data, technical breakdown).
What is the maximum profit and loss for a Long Put?
Max profit: (Strike - Premium) × 100 (at stock = $0). Max loss: Premium paid × 100.
What is the breakeven price for a Long Put?
Breakeven: Strike price - Premium paid. Example trade: Buy 1 SPY $420 Put for $3.50. Max loss: $350. Breakeven: $416.50. Profit increases as SPY falls.
What are common mistakes when trading a Long Put?
Common mistakes include: Buying puts during earnings without understanding IV crush; Choosing strikes too far OTM (low POP); Not scaling out as puts become profitable; Holding to expiration unnecessarily (exit early on profit).
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