Strategy

Long Put

Type of Strategy

trading / investing

sentiment

bearish

implied volatility

preferential to low iv environments for lower purchase cost, though flexible

example

stock xyz at $40.  Buy the 45-day 50 delta put option (at-the-money) with a strike price of $40 and a cost of $2.

boundaries

max loss = $2     max profit = $38         breakeven = $38     (put Stke – debit paid)

description

A long put provides the holder with the right to sell a security at the specified strike price prior to option expiry.

Set-Up

Purchase a put option at strike price X for a cost of P.

Soi perspective

Consistently purchasing out-of-the-money (OTM) put options is a losing strategy over time, especially with short expiration cycles.

Long put options may be employed in various strategies for position hedging, risk management, temporary collars, and bearish expectations.  Short put options are successfully used in many strategies.

Pure option premium purchases (including long put purchases) should generally be avoided.

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