Long Put
A long put means buying a put to profit when a stock falls, or to protect shares you own. Learn how it works, your break-even and max loss, and when to use one.
A long put simply means you bought a put option. "Long" is trader-speak for owning something, so a long put is a put you own. It gives you the right to sell a stock at a locked-in price, and it profits when the stock falls.
If you have met the put option, you already know the shape. This page is about the specific act of buying one and why you would. Let me walk through it.
What "Long" Means
In trading, long means you own it and want it to gain value. Short means you sold it. So a long put is a bought put, held in the hope that it rises in value, which happens when the underlying stock drops.
Do not let the word "long" suggest a long time. It has nothing to do with duration. Long put just means bought put. That is the entire translation.
Watch a Long Put Work
Apple is at $200, and you think it is heading lower. You buy one put:
- Strike: $200, the price you lock in to sell at
- Premium: $4 a share, which is $4 times 100, or $400 for the contract
- Expiration: 30 days
Apple falls to $185. Your right to sell at $200 is worth $15 a share, or $1,500. After the $400 premium, you keep $1,100.
Apple rises to $210. Your put is worthless. You would not sell at $200 what you could sell at $210. You lose only your $400.
Your max loss is the $400 premium. Your break-even is $196, the strike minus the premium ($200 minus $4). Apple has to fall below $196 before you truly profit.
Two Reasons to Go Long a Put
To bet on a drop. You do not own the stock, you just expect it to fall. A long put is the clean way to profit from that, with your loss capped at the premium. It is the mirror of buying a call.
To protect what you own. If you hold 100 shares and fear a rough patch, a long put acts as insurance. A crash in the stock is offset by a rise in the put. Used this way it has a special name, the protective put.
- A long put is simply a bought put: "long" means you own it.
- It profits when the stock falls below your break-even.
- Max loss is the premium; break-even is the strike minus the premium.
- Use it to bet on a drop, or to protect shares you already own.
Pop Quiz
Three quick questions to see what stuck. Pick an answer and the explanation shows up right away.
What does "long put" mean?
"Long" means you own it. A long put is simply a bought put, nothing to do with time.
You buy a $200 put for $4. What is your max loss?
When you buy an option, the most you can lose is the premium. Here that is $4 times 100, or $400.
Besides betting on a drop, what else is a long put good for?
Held against shares you own, a long put is insurance. A drop in the stock is offset by a gain in the put.
Bottom Line
A long put is just a put you bought. It profits when the stock falls, with your loss capped at the premium and your break-even sitting a little below the strike. Buy one to bet on a decline, or to insure shares you already hold.
Once you are comfortable that "long" only means "bought," this whole term stops being jargon and becomes obvious.
Keep going: the full mechanics live in put option, and the selling side is the short put.