Long Put
Components
A long put is simply the purchase of one put option.
Risk / Reward
Maximum Loss: Limited to the net premium paid for the option.
Maximum Gain: Unlimited as the market sells off.
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.
Comments page 1 of 1
Yep, that's a strategy called a Protective Put. Please see the link under Bullish category.
Don't we use long puts to protect a stock we currently own from decreasing in value.
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