Long Put Stratergy

The long put option strategy is a bearish options trading strategy that act with limited outgo and windfall gains if stock moves a large move downwards. In this you buy a right to put a stock at the strike price. Will benefit if stock moves sharply lower than the strike price

Trade

-Buy 1 put option

Trade Example

-Stock XYZ is trading at $28 a share.
-Buy 27 put for $1.50

Profit and Loss Diagram

 

Long Put Summary

Break Even PriceStrike Price – Premium Paid
Maximum
Profit
Strike Price of Stock *100 – Initial premium paid
Maximum Profit ScenarioIff stock goes to $0.00 before expiration
Maximum
Loss
Limited to initial premium paid
Maximum Loss ScenarioStock stays higher than the strike price
Why TradeIf you want to protect and existing investment in stock, then you can buy a put option as an insurance against stock going down and portfolio incurring losses. Before you jump to buy puts, remember that premium you pay is based on theoretical value of stock decreasing
When to TradeStock Assumption : Very Bearish
Volatility : When volatility is low, so you pay less premium to enter the trade
When to CloseThere is no set profit target.
Legs1 leg
Passage of timeNegative.
With passage of time, the value of this option decreases. You had bought the option to open the trade and would want the option to rise
Increase in volatilityPositive.
With increase in volatility, the value of option increases
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