A long put is the simplest way to profit from a stock going down or to protect a stock position you own. When you buy a put option, you gain the right to sell shares at a specific price. This guide explains how long puts work and when to use them.
What is a Long Put?
A long put means you buy a put option. You pay a premium for the right to sell 100 shares of a stock at the strike price before expiration. If the stock drops, your put option increases in value.
Simple version: You pay a small amount upfront to profit if the stock goes down. Think of it as insurance. If the stock crashes, your put goes up in value. If the stock stays up, you lose what you paid for the put.
How Long Puts Work
You pick a stock you think will go down (or want to protect)
You buy a put option with a strike price and expiration date
You pay the premium (this is your maximum risk)
At expiration, one of two things happens:
Stock is below strike: Your put has value. You profit by the difference minus what you paid.
Stock is above strike: The put expires worthless. You lose the premium you paid.
Example: Speculating on a Drop
Stock XYZ is trading at $100. You think it will fall.
- Current price: $100
- You buy a $95 put expiring in 30 days for $3.00
- You pay $300 for the contract (100 shares x $3.00)
Outcome 1: Stock drops to $80. Your put is worth $15 ($95 - $80). You make $1,500 minus the $300 you paid. Profit: $1,200. That is a 400% return.
Outcome 2: Stock stays at $100. Your put expires worthless. You lose the $300 you paid. That is your maximum loss.
Two Reasons to Buy Puts
1. Speculation (Bearish Bet)
If you think a stock is going to drop, buying puts is a way to profit. You get leverage and limited risk. Even if the stock gaps down overnight, you cannot lose more than your premium.
2. Protection (Hedging)
If you own shares and worry about a downturn, you can buy puts to protect your position. This is called a protective put or married put. If the stock crashes, your put gains value and offsets your stock losses.
Example: Protection
You own 100 shares of ABC at $100 ($10,000 total). You are worried about a market crash.
- You buy a $90 put for $2.00 ($200)
- This guarantees you can sell your shares at $90 no matter how low the stock goes
If stock drops to $60: Your shares lost $4,000, but your put is worth $30 ($3,000). Net loss is only $1,200 instead of $4,000.
If stock stays at $100: Your put expires worthless. You are out $200, but your shares are fine.
Why Buy Long Puts?
- Profit from declines: Make money when stocks go down without shorting
- Limited risk: You can only lose what you paid for the option
- Protection: Hedge your stock positions against crashes
- No margin required: Unlike short selling, buying puts does not require margin
The Risks of Long Puts
The biggest risk is losing your entire investment. If the stock does not drop (or even goes up), your put can expire worthless. Time decay also works against you. Every day, your option loses value if the stock stays flat.
Unlike short selling, where you can make money slowly as the stock drifts down, with puts you need the move to happen before expiration.
Choosing Strike and Expiration
- At the money puts: Strike near current price. More expensive but higher probability of profit.
- Out of the money puts: Strike below current price. Cheaper but needs a bigger drop to profit.
- Longer expiration: More expensive but gives you more time for the move to happen.
- Shorter expiration: Cheaper but higher risk of timing wrong.
Tip: For protection, buy puts with at least 60-90 days until expiration. Short-term puts are cheap but expire quickly. For speculation, match your expiration to when you expect the move to happen.
Long Put vs Short Selling
Both let you profit from declines, but they work differently:
- Long put: Limited risk (only lose premium). Needs move before expiration.
- Short selling: Unlimited risk (stock can go up forever). No expiration.
- Long put: No margin required. Easy to do in any account.
- Short selling: Requires margin account. Hard to borrow some stocks.
Tips for Buying Puts
- Have a reason: Know why you expect the stock to drop
- Check the cost: Puts are expensive during high volatility
- Set exit rules: Decide when to take profits or cut losses
- Do not overtrade: Buying puts every week adds up fast
Track Your Put Trades
Pro Trader Dashboard automatically tracks all your long put trades. See your win rate, average return, and total P&L in one place.
Summary
A long put is when you buy a put option. You profit when the stock drops below your strike price. Long puts are used for speculation (betting on declines) or protection (hedging your stock positions). Your risk is limited to the premium you pay, making puts a defined-risk way to play the downside.
Want to learn more options strategies? Check out protective puts for hedging or long calls for bullish bets.