Long Put

Long Put

Post By - Laxmi Mahera
Review By : Rohan Sharma
Updated on : October 26, 2021

Basics Concepts

Context

Outlook

With a Long Put, your outlook is bearish. You expect a fall in the underlying asset price.

Net Position

This is a net debit transaction because you pay for the Put option

Effect of Time Decay

Time decay works against your bought option

Appropriate Time Period to Trade

First 2 weeks for Monthly Options

Breakeven = (Put strike – Put premium)

Steps to Trading a Long Call

Steps In

Try to ensure that the trend is downward and identify a clear area of resistance.

Steps Out

Manage your position according to the rules defined in your Trading Plan.
Sell your long options before the final month before expiration if you want to avoid the effects of time decay.
If the stock rises above your stop loss, then exit by selling the puts.

Exiting the Trade

Exiting the Position

Sell the puts you bought

Mitigating a Loss

Use the underlying asset or stock to determine where your stop loss should be placed.

Advantages and Disadvantages

Advantages

Profit from declining stock prices.
Far greater leverage than simply shorting the stock.
Uncapped profit potential with capped risk.

Disadvantages

Potential 100% loss if the strike price, expiration dates, and stock are badly chosen.
High leverage can be dangerous if the stock price moves against you.

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