Long Put

Components

A long put is simply the purchase of one put option.

Risk / Reward

Maximum Loss: Limited to the net premium paid for the option.

Maximum Gain: Unlimited as the market sells off.

Characteristics

When to use: When you are bearish on market direction and bullish on market volatility.

Like the long call a long put is a nice simple way to take a position on market direction without risking everything. Except with a put option you want the market to decrease in value.

Buying put options is a fantastic way to profit from a down turning market without shorting stock. Even though both methods will make money if the market sells off, buying put options can do this with limited risk.