Long Put: How It Works, Example and Risks
A long put buys the right to sell shares at the strike. Traders use it for a bearish view or to hedge, with risk limited to the premium. The main risk is the stock not falling far enough before expiration.
At a glance
| Outlook | bearish |
|---|---|
| Level | beginner |
| Max profit | (Strike − premium) × 100 if the stock goes to zero |
| Max loss | Premium × 100 |
| Breakeven | Strike − premium |
| Greeks exposure | Negative delta, negative theta, positive vega |
| Ideal IV environment | Low IV |
Payoff diagram
Worked example
Buy the $100 put for $4.00 ($400). Breakeven is $96. At $90, profit is ($100 − $90 − $4) × 100 = $600.
How to manage it
- Define the price that invalidates your view.
- Consider a bear put spread to cut cost.
- Close before the final week to limit decay.
Risks
- Can lose 100% of the premium.
- Negative theta.
- Volatility falling after a drop can reduce value.
Questions
Is buying puts the same as shorting a stock?
Both profit from a fall, but a long put's loss is capped at the premium.
Can puts protect my portfolio?
Yes — see the protective put.
When does a long put make money?
When the stock falls below strike minus premium by expiration, or the put's price rises before then.
Related
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