LONG PUT
Overview
Purchase a put option to profit from a stock declining below the strike price before expiration. Your maximum loss is the premium paid — fully defined at entry. Profits increase as the stock falls; can double as portfolio insurance on shares you already own.
What it does
You're buying the right to sell 100 shares at the strike price, even if the actual market price is far lower. The position profits as the stock declines. It acts like insurance: you pay a premium, and if the stock crashes, the put pays out. If the stock rises or stays flat, you only lose the premium you paid.
Structure
buy 1 put
Setup
- 1.Choose a stock or ETF you expect to fall.
- 2.Open the option chain and select a put option at or near the current stock price.
- 3.Choose an expiration 30–60 days out.
- 4.Buy 1 Put option — this opens a long put position.
- 5.Confirm the order shows a debit and your max loss = premium paid.
Max profit
Substantial. If the stock drops to zero: (Strike − Premium Paid) × 100. E.g., ($440 − $6.50) × 100 = $43,350.
Max loss
Premium paid. E.g., $650 for a $6.50 put — fully defined on trade entry.
Breakeven
Strike Price − Premium Paid. E.g., $440 strike − $6.50 = $433.50 at expiration.
When to use
When you're bearish on a stock or ETF and want a defined-risk way to profit from a decline. Also effective as portfolio insurance against shares you hold.
When to avoid
When the stock is already beaten down and implied volatility is elevated after a big drop — you'll overpay for the put and need a larger move to profit.
Example trade
Stock: SPY trading at $440 Expiration: 45 days Buy 1 SPY $440 Put at $6.50 (debit $650) Breakeven: $440 - $6.50 = $433.50 Max Loss: $650 (if SPY stays above $440) Max Profit: ($440 - $6.50) × 100 = $43,350 (if SPY goes to zero) If SPY falls to $420: Put is worth $20, profit = ($20 - $6.50) × 100 = $1,350 If SPY rises to $450: Put expires worthless, loss = $650
Common mistakes
- ×Buying puts after a large drop when IV is already elevated — you pay inflated premium for a move that may have already occurred.
- ×Using puts too far out-of-the-money — requires an enormous move to profit.
- ×Forgetting that time decay erodes value daily, even when the thesis is correct.
- ×Holding through a stock recovery — a profitable put can quickly turn into a loss if the stock bounces.
- ×Not sizing appropriately — buying too many contracts magnifies losses if the stock rallies.
FAQ
Can I use a long put as insurance for stocks I own?
Yes — this is called a protective put. You own the stock and buy a put to floor your downside risk. The put premium is the cost of that insurance.
When should I take profits on a long put?
Consider closing when you've captured 50–100% of the premium paid in profit, or when the stock reaches your downside target. Don't wait for expiration.
How does a long put differ from short selling the stock?
A long put has defined risk (you only lose the premium). Short selling has theoretically unlimited risk because the stock can rise without limit.