Long Put Option Strategy (Best Guide w/ Examples)

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The long put option strategy consists of buying a put on a stock a trader has a bearish outlook on. Compared to shorting stock, a long put has similar profit potential but significantly less loss potential.
In this video, you'll learn:
1. What are the characteristics of the long put options strategy?
2. What does the expiration risk graph look like for a long put position?
3. How do long put positions perform when the stock price movements up, down, or sideways?
Also, you'll see three real trade examples of long puts in action.
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[@starchild2735]

BEST EXPLANATION I've heard to date....thank you!...Some people are making it so complicated. Love your clarity and examples.

[@ebutuoy4357]

❤

[@vaishalishah3684]

Very well done! Charts and tables are perfect and informative . Learned a lot !

[@alk6743]

Perfect. Thankyou for making it simple to understand.

[@projectfinance]

I'm glad it was helpful! Thanks for the comment.

[@bartholomewakharia8609]

thanks for helping the freshers to grow. You are a potential mentor

[@sibac00]

I think some folks are born teachers .and you're a darn good teacher 👍thank you.

[@chrissansonetti3515]

Excellent video 👍. Thank you for making options easier to understand!!!

[@projectfinance]

Of course! Thanks for the comment!

[@wesleymcdowell5908]

the graphs helped a lot

[@gnzz_24]

Awesome explanation and the graphs make it very easy to understand. Wish you compared this scenario - for a given amount at hand -> itm , higher premium, lower number of contracts versus otm, lower premium, more number of contracts. Could the latter be always more profitable than the former ?

[@wolfcrossmj8308]

Subscribed. awesome run down and visuals man, thanks. will be making my first options play soon

[@projectfinance]

Thanks for the sub!

[@danieltaylor2873]

Well this is by far the best explanation I've seen so far, great job lol but I have questions still I need answers to so Back on the hunt.

[@Silver_Miner]

excellent been looking for this for days

[@projectfinance]

Glad the video was helpful! Thank you for commenting/watching!

[@horizonglobalmarket4939]

Thanks Chris, that was great! just a quick question regarding the example # 2, close to the 8 days to the expiration date is not the best time to close this position for higher profit? where the strike price is below the break even with higher put price..., tnx.

[@glauberbrito8685]

Great video. Thank you.

[@projectfinance]

You're welcome! Thanks for the comment.

[@lopota2111]

Great video!!

[@johnghabana9854]

What a video!! Bravo lol

[@chumaski6594]

Excellent presentation

[@projectfinance]

Thank you for commenting it means a lot!

[@TheGuerrCZ]

Great!

[@mccleanphotography]

great video!

[@projectfinance]

Thank you!

[@buckybadger2780]

I wish you could do another video with less charts in Grasse, in more reasoning why people choose these scenarios in more real world examples.

[@lyubolesiv6867]

How do you correct a long naked put? For example the stock keeps going up and you want to exit your long position before it expires and is worthless.

[@vangaladeepthi7774]

Great explanation for beginners. I'm new to options. How to sell a long put option? Do we have to buy shares when the price drops to make profit? or sell the long put option directly ?

[@projectfinance]

Hi Vangala! To close out a long put position, you simply sell the put at its current price (as you've mentioned). Selling the put you own will close the long put position and you'll be left with whatever profit or loss you had on the trade at the time of closing it (based on your entry price and exit price). I hope this helps! -Chris

[@vangaladeepthi7774]

@@projectfinance Got it..Thanks:)

[@zzhughesd]

Sell/write a put is bullish but what happens when have to buy. Is it limit less losses or limited to premium. Still confused

[@gadeboye2001]

What happens if you buy a put option on a stock that got delisted because of one reason the other like trade agreement issues , am thinking of some Chinese stocks

[@Mysteryp7]

Hi!! I have question please! for the put option trading. If my expire date was july 20. and current stock price is $300. and my put strike price is $270. and If on July 1 stock was $266 and keep falling till $250. and on July 10th, stock price goes up to $255. could I opt out here? and make profit? before stock goes back to $305 before my expire date?

[@todosube]

you can sell your option any time, depending on the price of the option, you either lose money or make money.. based on the stock price and time left on the option=option current price

[@michaelkwong8070]

So if you hold through expiration and your put is ITM does the broker automatically assign your shares after market over the weekend? Or do you hold a short stock position into the next week?

[@projectfinance]

Yes, if you hold a long put through expiration and the put is ITM, you will automatically end up with -100 shares of stock per put that expired in-the-money. You'll end up with a short stock position on the following trading day.

[@dontswin]

@@projectfinance So does this now mean that you have paid forward as in sort of a loan for those shares? Or is it you have borrowed the shares from the brokerage and still have a position in the hopes that they will go lower so you can buy them cheaper and return them to the brokerage? Do you get debited for the 100 shares when this happens initially? So you're out the premium you paid, then do you pay for the stock or is it a debit from your cash balance?

[@EagleEyez786]

@13:30 you said you can sell for profit, but the stock price is still above breakeven to gain any profits. Please explain, I am new to options.

[@gnzz_24]

The put price went up to $3.00 with the expectation that the underlying stock price will drop. Since you paid $1.49, your gain will be $1.51.

[@xanderarena]

your mic audi level vs the song at end is way off, please raise your mic level. good channel!

[@1fighisimo]

what happens if I buy OTM and becomes ITM in a couple of days?

[@danielmanahan692]

at what moment does the stock change hands? suppose I buy a 5 day put on monday, exercise the put on tuesday, do I still have the stock until expiration on friday? probably not. I think the stock is no longer mine the moment I exercise it. so is there ever an advantage for me to exercise the put sooner than later? now considering the reverse in selling a put is it likely that you will get tagged on that tuesday? or will put buyers usually wait until the last minute on friday so they get as much choice as possible maybe to wait for the stock price to go way up or way down so they are profiting at their maximum?

[@projectfinance]

If you exercise a put you will sell/short 100 shares of stock at the put's strike price. You will no longer have a put option and instead you'll have the short stock position according to the number of puts you purchased. If you already owned 100 shares in the underlying and you exercise a put, you'll sell the 100 shares at the put's strike price. It is extremely rare for options to be exercised because the option buyer loses the extrinsic value in the option when they do so. Therefore, as an option buyer, in almost all cases exercising the option will not be a smart thing to do. Instead, your goal is to profit from changes in the price of the option.

[@danielmanahan692]

@@projectfinance okay but then please explain this concept, very important to understand. if most people are not wise in exercising the put, then why wouldn't the seller of the put just bluff? put it high in the money, collect massive premium, knowing that it will eventually expire worthless? sure this is a gamble right? but that gamble like all risks can be built into the gains/losses expectations and odds. risk/reward to be considered. wouldn't it be a good strategy then to keep the put you are selling higher up than normal with less fear of getting assigned? also while keeping the call you sell relatively low as well as getting assigned, as long as higher than the stock average price, wins you money. so the changes of losing is relatively low also what is your experience with TD Ameritrade TOS paper trading selling puts that end up ITM during the week, several days before expiration? will they likely be assigned? is it random with low odds?

[@gnzz_24]

Daniel Manahan what if the underlying stock price goes higher than your strike price. That’s a short squeeze and you will lose money

[@danielmanahan692]

@@gnzz_24 stock prices go higher on low volume. not a short squeeze it must close above, not just peekaboo above with one share

[@SejalPatelDrSej]

Is the maximum profit potential listed on the video and calculated by the broker platform a huge underestimate.. in such an extreme scenario wouldn’t the increased volatility impact this number greatly to the upside ?

[@projectfinance]

Not really. If we assumed the stock price went to $0, or even $1 (from a much higher number), the put would be extremely deep ITM. Options that are super deep ITM consist mostly of intrinsic value and little extrinsic value. An increase in IV would therefore impact a deep ITM option much less than an ATM option, as IV is a measurement of extrinsic value. Options with little extrinsic are not as sensitive to IV compared to options with more extrinsic value.

[@SejalPatelDrSej]

projectoption ahhhhh of course thank you for taking the time to respond!

[@VerbiVeritatis]

At the end of the put contract if you don't sell and you're "in the money" do you automatically get the money? Or do you have to actually sell it after you buy it to get returns?

[@projectfinance]

Sell the put option at a higher price to secure your gains. The P/L is updated in real-time as the option price changes. It's like if you buy a share of stock for $100 and it increases to $105. You'll see a $5 profit on your position. To realize the profit, sell the share for $105. Same process with options.

[@susanwangcfa3685]

@@projectfinance I think his question relates to the table that is visible at the start of the video and particularly with respect to the section labeled "Resulting Position After Expiration." In other words, if you buy puts and they expire in the money -- and you hypothetically neglected to do anything further with respect to selling or exercising those puts -- what then happens? The graphic makes it sound like your account will automatically sell (short sell?) the underlying security. Is that correct? Thank you.

[@susanwangcfa3685]

Actually, I think you say it at the very end of the video: The result is an automatic short of the underlying security. Thank you.

[@projectfinance]

@@susanwangcfa3685 Yes correct. If you own puts that you allow to expire ITM, they will automatically convert to -100 shares (per contract) if held through expiration. If you had 0 shares of stock and allowed 5x puts you own to expire ITM, you'd end up with -500 shares. If you had 200 shares of stock and allowed 5x puts you own to expire ITM, you'd end up with -300 shares.

[@Zenbeau]

are you sure 12:59 is correct? the stock didn't go beyond its breakeven price for a long time and i think the option should have started expiring sooner. for the majority of duration of this option it does not go below breakeven price so personally i think it should have started expiring...

[@projectfinance]

Yes. Option prices move constantly and as the stock price moves. The put made money initially because the stock price fell, leading to an increase in the put's price. At the very end of the trade, the stock price rallied above the put's strike price. With no more time left, the put's value plummeted to $0 because it was expiring. An option "expires" at expiration. Not any time before. But the option's price will change every minute of each day depending on where the stock price is relative to the strike price, and how much time the put has left before expiring.

[@Larry-Hi]

Do I have to own the stock before buying a Put option?

[@rubberbandman3rd]

No, especially if you're the buyer

[@mannycabrera4178]

Why does the last trade have more intrinsic value ?

[@gnzz_24]

‘Cuz the strike price is higher than the current stock price (ITM) hence more intrinsic value.

[@ron2040]

I don't get how the breakeven is subtracted the debit paid when we paid to the seller

[@projectfinance]

You pay $5 for a put with a strike of $80. For the put to be worth $5 at expiration the stock price needs to be at $75 or lower. The break even is only math telling you where you make or lose money at expiration.

[@ron2040]

@@projectfinance yup, isn't it we should add the capital cost, as in, paid debit + strike price 's cost=breakeven

[@projectfinance]

@@ron2040 No because we pay the debit for the put. The breakeven price tells us "at which stock price will the put's value be equal to the initial debit paid AT EXPIRATION?" That's the put's strike - debit paid because if the stock is below the put's strike, the put has intrinsic value, which remains at expiration. If the stock is above the put's strike, it has no intrinsic value and will be worthless at expiration.

[@drpoundsign]

But...what if you buy a put that's way higher than the current stock price. Wouldn't you make more money?? Confused

[@projectfinance]

You would pay more to enter the position because a put with a strike price way higher than the stock price will have lots of "intrinsic" value. If the stock is at $150 and the put's strike is $200, the put will be worth at least $50 because, if exercised, will short 100 shares $50 above the current stock price. Since the put's price is approximately $50, that means we'd need $5,000 to buy one of these puts. If the stock price then fell to $140, the 200 put would be worth at least $60 ($6,000), at which point we could sell the put for the value of $6,000 and realize a $1,000 profit.

[@honestdudeguru]

What is that you want to happen ideally?

[@projectfinance]

The stock to go to zero if you are only long a put and speculating on the decline. You could be buying puts to protect a stock position you own, in which case you wouldn’t want the stock to go to zero.

[@ryansenger408]

Why do all these explanations not explain more clearly the person doesn't wait until Expiration to sell their position... that they can do it at anytime and thereby don't incur the full loss of their premium because the new buyer assumes the rest of the premium. Why don't they explain you don't have to wait until its below the breakeven before they are making money... I had to make my first PUT today to realize I had already made a potential of $800 if I sold my position midday... (It has an expiration of Jun19 so I'm holding it for awhile while the market tanks) but I'm still curious why it isn't better explained. It's like literally the first thing I would mention to a new trader. I mean I realize you ARE mentioning these things - but its so much information I'd Front load that info...

[@projectfinance]

Thanks for your feedback and I agree with you. In my newer videos I do mention that as often as I can. In my older videos (like this one) I didn't necessarily mention it in every strategy guide, but I did mention it in most of them.

[@JoseGarcia-kr3xx]

profit potential is good but the probability of winning that trade is lower as the expiration gets near...kind of scary.......I think your better of selling puts than buying puts

[@dontswin]

The guy never mentioned anything about rolling the puts you bought 'forward'. Which I think means buying more of the same put farther out. The risk of selling puts is that you may get assigned the 100 shares at significantly less than what you may think they are worth and they can immediately fall further, way below the strike when you sold the put- if you don't 'buy back the put to close'. Plus to need larger capital to cover the purchase on assignment, you have no choice but to take delivery as it were.

[@gnzz_24]

You are obligated to buy at expiration or if the stock price goes up , you will lose

[@SlikRick.e]

What if the stock is already at $130 and I buy the $150 strike put with 30days to expire. Is that a good trade? How does that affect potential profit?

[@projectfinance]

If the stock is at $130 and the put strike is 150, the 150 put will be worth at least $20.00, which means a premium of $2,000. You'd have to pay that premium to buy the put. If the stock continues to decrease, the put's value will increase further and you can make money on the sale of that put. When you buy a put with a strike price above the stock price, you are buying an "in-the-money" put because the put has intrinsic value (the $20 value I mentioned earlier). The downside of buying in-the-money puts is that they are more expensive than buying out-of-the-money puts (puts with strikes below the stock). Because they are more expensive, you get less leverage than if you were to buy cheaper put contracts with a higher quantity. For example, let's say the stock price is $150 and we are assessing two put options: the 170 put for $25 and the 130 puts for $2.50. If I buy the 170 put, I'll pay $2,500 for one contract. If the stock price falls to $100, my 170 put will be worth at least $70 ($7,000 in premium). My profit is $4500 for the put purchase if I bought it for $2500 and sold it for $7500. However, let's say I took that $2500 at the beginning and purchased 10x of the 130 puts for $2.50 each ($250 premium per option x 10 contracts = $2500 cost). If the stock price falls to $100, the 130 puts will be worth at least $30 each ($3,000 in value). Since I own 10 of them, my position is worth $30,000. In these two scenarios, we can see that buying more contracts of a cheaper put option led to significantly more profits than buying a more expensive in-the-money option when the stock price made the same movement. The benefit of buying cheap OTM options is that your risk is limited but you have immense return potential if the stock moves big in your favor. The downside is that in this example, if the stock price did not fall below $130 by expiration, the 130 puts would expire worthless and the premium paid would be vaporized. $2500 loss. However, if I bought the 170 put for $25 and the stock price was at $150 the entire trade, I'd only lose $500 because the put would be worth $20 at expiration. A put's value at expiration is equal to: Put Strike - Stock Price. Since I paid $25 for the put initially ($2500 cost) and it had $20 of value at expiration ($2000 premium), I only lost $500. Therefore, the benefit of buying in-the-money options is that no change in the stock price will lead to only a partial loss of the option purchase (more specifically, the extrinsic value that existed in the option when you bought it). But, you won't get as much leverage as buying more contracts of a cheaper, out-of-the-money put contract. I hope this helps! I know this stuff is confusing but keep in mind I've been involved with options full-time for 7 years. It takes time to let these ideas sink in. Keep at it and you'll get it down! -Chris

[@SlikRick.e]

@@projectfinance took me a while to digest. Great examples and explanations. Just for comprehension so buying an ITM Put the value of the Put increases as the stock goes further below the strike? I understand selling OTM puts , those come easy for me, but I just bought a few ITM puts and even though the stock price was below my strike I still wasn't making money.

[@projectfinance]

@@SlikRick.e because you need the stock to move lower. If you buy a put you don't automatically make money from buying an in-the-money put. For instance, if the stock is at 130 and you buy the 150 put for $22 ($2,200 in cost), you will lose $200 if the stock stays at $130. If the stock falls $10 to $120, the 150 put will be worth at least $30 ($3,000), in which case you'll have a profit. No matter the strike you buy, you need the option to become more expensive after buying it. For puts this means you need the stock price to decrease, or for the stock's options to become more expensive through an increase in demand (a general increase in the option prices -- AKA an increase in implied volatility)

[@SlikRick.e]

@@projectfinance thanks! That brings clarity.

[@zosorob4559]

I am now -100 shares of ERI after my put option expired and shows i have $2312 cash balance in my account. Stock price closed at 23.12 OUT OF THE MONEY. 23.12 ×100= $2312. HOW DID I GET THESE FUNDS IF I BUSTED MY ACCOUNT

[@projectfinance]

Can you tell me what put you had (strike price, amount you sold it for, expiration)? Otherwise I can't help you

[@zosorob4559]

@@projectfinance got the put at a stike price of 20, 2 days before expiration this past friday ( i knew i was taking a gamble when i bought it but was sure it was going down. Obviously i was humbled and am going to learn from this so go easy on me) td ameritrade sold shares on my behalf it looks like.. Now in im "cash and sweeps vehicle" it says (2,321) which is negative on td ameritrade i believe

[@zosorob4559]

@@projectfinance looks like they sold the shares because i didnt sell the contract before the market closed and ERI stock price was at 23.21

[@projectfinance]

@@zosorob4559 I'm still hazy on what you did. You bought the 20-strike put in ERI. How much did you pay? And now you are short -100 shares of stock at $20/share, as you held the put through expiration and automatically exercised it? What is the position in your account?

[@samideaibes1111]

I bought a put on gamestop and the contract expires on the 26th of february. Gamestop crashed today and dropped nearly 100$ i should be making money right? Well no Instead I lost 300$ Robinhood is out for robbery, not sure what to do.

[@JCLPAA]

still confused