Long Put

Buying a Put is the opposite of buying a Call. When you buy a Call you are bullish about the stock / index. When an investor is bearish, he can buy a Put option. A Put Option gives the buyer of the Put a right to sell the stock (to the Put seller) at a pre-specified price and thereby limit his risk. A long Put is a Bearish strategy. To take advantage of a falling market an investor can buy Put options.

When to use: Investor is bearish about the stock / index.

Risk: Limited to the amount of Premium paid. (Maximum loss if stock / index expire at or above the option strike price).

Reward: Unlimited

Break-even Point: Stock Price – Premium

Example:

Mr. XYZ is bearish on Nifty on 24th June, when the Nifty is at 2694. He buys a Put option with a strike price Rs. 2600 at a premium of Rs. 52, expiring on 31st July. If the Nifty goes below 2548, Mr. XYZ will make a profit on exercising the option. In case the Nifty rises above 2600, he can forego the option (it will expire worthless) with a maximum loss of the premium.

Long Put
Strategy : Buy Put Option
Nifty index Current Value 2694
Put Option Strike Price (Rs.) 2600
Mr. XYZ Pays Premium (Rs.) 52
Break Even Point (Rs.)
(Strike Price – Premium)
2548

To view Practical examples of Long Put Option Trading Strategies

Courtesy – NSE India