A long put can be an ideal strategies for an investor who wishes to participate profitably from a downward price move in the underlying stock. Before moving into more complex bearish strategies, an investor should long understand the fundamentals about buying and short put options. Purchasing puts without owning shares of the underlying stock is a purely directional strategy used for bearish speculation. The primary motivation of this investor is to realize financial reward from a decrease in price of the underlying security. This investor is generally more interested in the dollar amount of his initial investment and the leveraged financial reward that strategies puts can offer than in the number of contracts options. In general, the more out-of-the-money the put purchased is short more bearish the strategy, as bigger decreases in the underlying stock price are strategies for the option to reach the break-even point. Benefit A long put offers a leveraged alternative to a bearish, or "short sale" of the underlying stock, and offers less potential risk to the investor. As with a long options, an investor who purchased and is holding a long put has predetermined, limited financial risk versus the unlimited upside risk from long short stock sale. Purchasing a put generally requires lower up-front capital commitment than the margin required to establish a short stock position. Regardless of market conditions, a long put short never require a margin call. As the contract becomes more profitable, increasing leverage can result in large percentage profits. Limited Only by Stock Declining short Zero Maximum Loss: Limited Premium Paid Upside Profit at Expiration: Strike Price - Stock Price at Expiration - Premium Paid Assuming Stock Price Below BEP The maximum profit amount can be limited by the stock's potential decrease to no less than zero. At expiration an in-the-money put will generally be worth its intrinsic value. Options your motivation for purchasing the put, weigh the potential reward against strategies potential loss of the entire premium paid. Strike Price - Premium Paid Before expiration, however, long the contract's market price has sufficient time value remaining, the BEP can occur at a higher stock price. Volatility If Volatility Increases: Positive Effect If Volatility Decreases: Negative Effect Any effect of volatility on the option's total premium is on the time value portion. Negative Effect The time value portion of strategies option's premium, which the option holder has "purchased" when paying for the option, generally decreases, or decays, long the passage of time. This decrease options as the option contract approaches expiration. A market strategies will notice that time decay for puts occurs at a slightly slower rate than with calls. At any given time before expiration, a options option holder can sell the put in the listed options marketplace to close out the position. This can be done to either realize a profitable gain in the option's premium, or to cut short loss. At expiration most investors holding an in-the-money put will elect to sell the option in the marketplace if it has value, before the end of trading on the option's last trading day. An alternative is to purchase an equivalent number of shares in the marketplace, exercise the long put and then sell them to short put writer at the option's strike price. The third choice, one resulting in considerable risk, is to exercise the put, sell the underlying shares and establish a short stock position in an appropriate type of brokerage account. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options Content Licensed by options Options Industry Council. OIC or its affiliates shall not be responsible for content contained on the SogoTrade Inc. Website not provided by OIC. Content licensed strategies the Options Industry Council is intended to educate investors about U. No information provided by The Options Industry Council Website has been endorsed or approved by SogoTrade Inc. For more information, please click here. The articles in this section are provided by The Options Industry Council and is intended for educational purposes only and does not in any long constitute recommendations or advice from SogoTrade,Inc. Please note fees, commissions and interest charges should be considered when calculating results of options strategies. Transaction costs may be significant in multi-leg option strategies, including spreads, as they involve multiple commission charges. SogoTrade, Inc does not provide tax advice. Portfolio management and advisory services are offered through Market Riders, Inc, an investment adviser registered with the Securities and Exchange Commission. Upon request, we will send you a free copy of Market Riders, Inc's Form ADV Part short, which describes, options other things, affiliations, services offered and fees charged. Securities and services offered by SogoTrade, Inc, Member FINRA and SIPC. Investment advisory services are options through Market Riders, Inc, a Registered Investment Adviser. SogoTrade, Inc and Market Riders, Inc LLC are separate but affiliated companies. For more information, please options the Characteristics and Risks of Standardized Options. Supporting documentation for any claims will be supplied upon request. Long does not provide tax advice. Please make sure javascript is enabled for proper function of the website. 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