Long Put
Buy 1 ATM Put
The Long Put (together with the Long Call) is the most basic option strategy. It is a contract that gives the holder the right to sell the underlying security at a specified price for a certain, fixed period of time. Buyers of Long Puts believe the underlying equity will drop in price before option expiration.
Compared to shorting a stock outright, Long Puts provide unlimited profit potential with limited risk.
Consider the following hypothetical example for a stock trading at $27.52.
A $28 put option can be purchased for $0.84 for the current month. A profit is realized if the stock trades below $27.16 at option expiration; profit potential is unlimited. Above $28.00, a maximum loss is realized equal to the option price paid.
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The opposite of this strategy is the Short Put (Sell 1 ATM Put). In this case, profit potential is limited to the premium received from the sale with unlimited loss potential.
