Long Put Options

Function: Speculation

Outlook: Bearish

     When you buy put options, you are said to be going long put options.  Buying puts gives investors the opportunity to leverage their investment and make more money with what capital they have.  However, in order to be able to leverage profits, you also bear the risk of leveraging losses.  Thus buying puts is risky, in that if the underlying asset does not fall below the strike price, the investor loses 100% of what he paid for the put.

     If you own stock and you buy put options tied to that stock to protect yourself from a fall in the stock price, you are buying protective puts, which is a different strategy than buying puts without owning the underlying asset.

Long Put Payoff Graph