Options Strategy Guide
Long Put
Profit when a stock falls — with defined, limited risk.
Beginner
Bearish
Defined risk (premium paid), large profit potential on stock decline
The Simple Version
Plain English — no jargon
You think a stock is going to fall. Instead of short-selling (which has unlimited risk), you pay $200 for the right to sell 100 shares at $50. If the stock crashes to $30, your right to sell at $50 is very valuable. If the stock goes up, you just lose your $200. You bet on a crash with a fixed, known maximum loss.
How It Works — Step by Step
- 1 Buy a put option on a stock you expect to fall
- 2 Pay the premium — this is your maximum loss
- 3 If stock falls below strike minus premium paid, you profit
- 4 Maximum profit occurs if stock falls to zero (theoretical)
- 5 You can sell the put before expiration to capture gains
Real Example
META
Illustrative example — not a recommendation
Stock Price
$500.0
Strike Price
$490.0
Premium Collected
$5.0/share
Days to Expiration
30d
Max Profit
$48500
Breakeven
$485.0
Annualized Return
0%
When to Use It — and When Not To
✓ Use when
- You are bearish on a stock and want defined risk
- You want to hedge existing long stock positions
- A catalyst (earnings miss, negative news) is expected
- IV is relatively low — puts are cheaper
✗ Avoid when
- IV is very high — puts are expensive
- You are bullish or neutral
- You don't have a specific timeframe — time decay will hurt
- The stock would need an enormous move to be profitable
Greeks & Mechanics (for the experienced trader)
Delta
Negative — profits directly from downward stock movement.
Theta
Negative — time decay erodes value every day.
Vega
Positive — benefits from rising implied volatility.
Gamma
Positive — profits accelerate as stock falls sharply.
Key Risks
- Option expires worthless if stock doesn't fall enough — lose full premium
- Time decay works against you — stock must fall within your timeframe
- IV crush can reduce put value even if stock falls slightly
Related Strategies
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