Definition
Long Put
A long put is buying a put option to profit from a fall in the underlying, with risk limited to the premium paid.
Buying a put gives the right to gain as the underlying drops below the strike, with the loss capped at the premium and large profit potential as price falls. It is a defined-risk way to bet on a decline or to hedge existing holdings. The break-even is the strike minus the premium.
Indian traders buy puts on Nifty, Bank Nifty, and stocks to play downside or to protect a portfolio (a protective put). As with calls, time decay erodes value daily, so the move must come quickly on short-dated options, and a low India VIX makes the put cheaper to buy.
Related terms
- Protective PutA protective put is buying a put option on shares you own to insure against a fall in price.
- Break-even Point (Options)The break-even point is the underlying price at which an option strategy neither makes nor loses money at expiry.
- Long CallA long call is buying a call option to profit from a rise in the underlying, with risk limited to the premium paid.
- Put OptionA put option gives its buyer the right, but not the obligation, to sell an asset at a fixed strike price before expiry — buyers profit when the price falls.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.