Long Put

AAA

DEFINITION of 'Long Put'

An options strategy in which a put option is purchased as a speculative play on a downturn in the price of the underlying equity or index. In a long put trade, a put option is purchased on the open exchange with the hope that the underling stock falls in price, thereby increasing the value of the options, which are "held long" in the portfolio.

The options can either be sold prior to expiration (for a profit or loss) or held to expiration, at which time the investor must purchase the stock at market prices, then sell the stock at the stated exercise price.

Long Put

INVESTOPEDIA EXPLAINS 'Long Put'

The long put strategy represents an alternative to an investor simply selling a stock short, then buying it back at a profit if the stock falls in price. Options can be favored over shorting due to increased liquidity (especially for stocks with smaller floats), increased leverage and a capped maximum loss (the investor cannot lose more than premiums paid).

RELATED TERMS
  1. Protective Put

    A risk-management strategy that investors can use to guard against ...
  2. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  3. Option

    A financial derivative that represents a contract sold by one ...
  4. Strike Price

    The price at which a specific derivative contract can be exercised. ...
  5. Speculator

    A person who trades derivatives, commodities, bonds, equities ...
  6. Short Sale

    A market transaction in which an investor sells borrowed securities ...
Related Articles
  1. Options & Futures

    Getting Acquainted With Options Trading

    Learn more about stock options, including some basic terminology and the source of profits.
  2. Options & Futures

    Stock Options: What's Price Got To Do With It?

    A thorough understanding of risk is essential in options trading. So is knowing the factors that affect option price.
  3. Options & Futures

    Conversion Arbitrage

    This stock/options combination helps traders take advantage of market mispricing. Find out how.
  4. Options & Futures

    How is a put option exercised?

    A put option is a contract that gives the option holder the right, but not obligation, to sell a set amount of shares (100 shares per contract) at a set price. If the option is exercised, the ...
  5. Options & Futures

    What are the most common momentum oscillators used in options trading?

    Read about some of the most common technical momentum oscillators that options traders use, and learn why momentum is a critical concept for options trading.
  6. Options & Futures

    How are Bollinger BandsĀ® used in options trading?

    Use Bollinger Bands to identify volatility changes and place options trades at the right time; profit in bull or bear markets using these strategies.
  7. Options & Futures

    Stock Futures vs Stock Options

    A full analysis of when is it better to trade stock futures vs when is it better to trade options on a particular stock. A quick overview of how each of them works and why would a trader, investor, ...
  8. Options & Futures

    The Potential Of Low-Priced Options

    The benefits of trading low-priced options, and learning how to pinpoint them, can be a very profitable strategy for an options trader.
  9. Options & Futures

    Who created Bollinger BandsĀ®?

    Learn about John Bollinger and his widely followed indicator, Bollinger Bands. Explore how traders interpret the different signals it provides.
  10. First time stock investors may ask, is there any way to buy insurance on stocks to prevent losses?
    Options & Futures

    Stock Safety: Top 3 Ways to Limit Your Losses

    First time stock investors may ask, is there any way to buy insurance on stocks to prevent losses?

You May Also Like

Hot Definitions
  1. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  2. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  3. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  4. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  5. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  6. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
Trading Center