Think of a Long Put like insurance for your investments. It's your safety net whether you already own a stock and want to protect its value, or you believe a stock's price is headed for a fall and want to profit. We'll break down exactly how it works, covering:

We'll also cover the pros and cons of this strategy, so you're fully informed. Crucially, learning options requires practice. Complete the assignments and consider joining our mentoring service for access to a demo trading account, where you can practice these strategies risk-free. Practice makes perfect when it comes to options trading!

The long put is a bearish strategy that lets you profit from a stock's decline without the full cost of shorting shares. It's like betting the price will go down, but with less upfront investment.

Let's say SPY is at $225.45, and you're bearish. Instead of shorting, you could buy a put option. Imagine a put option expiring in four months with a $220 strike price, costing $4.85 per share.

One contract (covering 100 shares) would cost you $485. This contract gives you the right, but not the obligation, to sell 100 SPY shares at $220 anytime before expiration.

If SPY drops to $200, your put option becomes very valuable. You could (theoretically) buy 100 shares at $200 and sell them at $220, making a $20 profit per share. After subtracting the initial $4.85 cost of the put, your profit would be $15.15 per share, or $1515 per contract. In practice, you'd likely just sell the put option itself for a similar profit. We'll use this SPY example to illustrate the long put strategy in detail.

The long put strategy is constructed by buying a put option. An investor with this position can be said to be ‘long’ a put.

The long put strategy will always be established at a net debit. In other words, it costs you money to buy a long put.

Look at the option quotes on SPY below for an expiration 4 months from now. SPY was trading at $225.45 at the time of this quote:

To establish a long put with SPY options, we might buy 1 SPY March 17th $220 put for $4.85. The result is we are holding 1 SPY March 17th $220 put at a $4.85 net debit or $485 total.

The long-put strategy should not be confused with the put protection strategy. A long-put on its own is bearish, a long-put held against a stock is considered bullish.

The maximum upside profit for a long put strategy is said to be unlimited. The further the share price of the stock falls below the break-even price at expiration, the more valuable the put option becomes. We therefore cannot define exactly the maximum profit.

The maximum downside loss for a long put strategy is limited entirely to the net debit initially paid for it. This loss will be seen if SPY closes at or above the $220 strike price of the long put at expiration, no matter how high the share price of SPY rises.

For the SPY March 17th $220 long put, the maximum loss = $4.85 debit paid, or $485 total.

The break-even price for a long put strategy at expiration is a closing underlying stock price (or index level) equal to the strike price of the long put minus the debit paid.

At expiration, the break-even price for the SPY $220 long put would be: $220 strike - $4.85 debit paid = $215.15

A key challenge with long puts is the relatively low probability of profit before expiration, often less than 50%. The further "out-of-the-money" your put option (meaning the strike price is significantly below the current stock price), the lower your chances of success.

In our SPY example, the probability of profit is only 29% (a figure your broker can provide). This is because the breakeven point ($215.15) is quite far from the current price ($225.45). SPY needs to drop at least $10.30 (4.57%) for the long put to become profitable by expiration.

This lower probability is why strategies like the bear put spread are often preferred, as they offer a better risk/reward profile.

It's important to note: While the probability of profit at expiration might be lower, a rapid price drop soon after you buy the put can lead to profit, thanks to the remaining "time value" in the option. Our examples focus on expiration, where time value is zero. However, always be aware of the total risks involved in any trade.

At expiration, if SPY closes at a point between the break-even price and the $220 strike price, a partial loss would be seen. Below the break-even price there would be a profit.

Before expiration, an investor can take a profit or cut a loss by selling the put option if it has market value which will be done at a net credit. Profit or loss would simply be the net difference between the debit initially paid for the Put Options and the credit received at its sale.

It is important for you to get into the habit of creating profit and loss tables. Here is an example of a P&L table for the SPY March 17th $220 long put strategy. Remember we paid $485 for the long put:

A rise in volatility has a positive effect however, usually when implied volatility is increasing the share price of the stock is falling. Any share price fall will be a positive for the put option.

Theta is the rate of decay in the ‘Time Value’ of an option. For a long put, theta (Time Decay) is negative. As each day passes time decay works against the buyer of the put option.

Looking at the long $220 put quote above. You can see that the theta value is - 0.030. This means that the time value of the put option will erode by $0.030 per share or $3.00 total per day. Because we own the put option we want the value to rise, theta has the effect of reducing the ‘time’ value of the option.

This is one of the main reasons we prefer to be option sellers (under the right market conditions) as opposed to option buyers.

Delta is the rate of change in the value of an option for a $1 move in the underlying share price. In our example with the SPY Long $220 Put, you can see that the delta value is -0.398. Delta for put options is a negative number because puts go up in value as the share price falls and vice versa.

This means that the value of the SPY long $220 put will go down by $0.398 per share or $39.80 total for a $1 rise in SPY and vice versa.

We can also consider delta as being short 39.8 shares of SPY. Think about it...if SPY fell by $1 and we were short 39.8 shares we would make a profit of $39.80. The exact same as the long $220 put option position.

Some long puts can be considered more bearish than others. The degree of bearishness depends primarily on the strike price of the put, which determines how much the underlying stock (or index) needs to fall for maximum profit to be realized at expiration.

You have no assignment risk with a long put strategy.

At expiry, if the share price is below the strike price, you have two options:

Like all options strategies, the long put has its advantages and disadvantages. While it's a valid way to profit from a declining stock price, we rarely use it ourselves.

We find the bear put spread to be a superior strategy, especially when implied volatility is low. By selling a short put in the spread, we reduce both the overall risk and increase the probability of profit compared to a simple long put. This still allows us to capitalize on a bearish outlook, but with a lower cost and better risk management.

At this stage it is best if you start practicing for real so this is what we want you to do:

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