Long Put

A single bought put: the loss is capped at the premium paid, and the gain grows as the underlying falls below the strike.

Also called Bought put, Put

Outlook

Bearish

Family

Basic

Level

Novice

Legs

1 leg

Expirations

1 expiration

Opens for

Debit

Maximum profit

Limited

Maximum loss

Limited

Legs at the reference strikes this page's diagrams are drawn from

Leg	Side	Contract	Ratio	How the strike is chosen
A	Long	Put 100	1	At the money

What it is

One put option bought and held. It gives the right, not the obligation, to sell 100 shares at strike A until expiry. The premium paid is the entire amount at risk.

Below A, each dollar the underlying falls adds a dollar per share to the option’s intrinsic value. Above it, the contract expires without value.

Unlike a long call, the profit here is limited rather than unlimited, and the reason is arithmetic rather than convention: an underlying cannot fall below zero, so the most the right to sell at A can ever be worth is A itself.

The payoff

At expiration

At expiration the position loses the premium at every price above strike A, then rises in a straight line as the underlying falls below it, flattening only at zero.

Flat and negative above A, rising one for one as the underlying falls below it. Break-even is the strike minus the premium paid.

The maximum profit occurs at an underlying of zero and equals the strike less the premium — a bound worth knowing, because it is what makes a far out-of-the-money put cheap and its best case correspondingly small.

How it behaves before expiration

Today, before expiration

Today's value is a smooth curve above the expiration line, closest to it deep in the money and far above it around the strike.

The dashed curve sits above the expiration line: the difference is time value, the price of the chance that the underlying falls before expiry.

A put also carries a second effect a call does not, and it runs the other way: the strike is received in the future, so at a positive interest rate its present value is slightly less than the strike itself. Deep in the money this makes a European put trade a little below its intrinsic value, which is the one place the dashed curve dips under the straight line.

The Greeks

Delta is negative, between −1 and 0. A −0.40 delta put gains about 40 cents when the underlying loses a dollar.

Gamma is positive and largest near the strike, exactly as for a call: the position accelerates into a favourable move.

Theta is negative. Time works against a bought option regardless of which direction it points.

Vega is positive. Rising implied volatility raises the put’s price with the underlying unchanged.

Where it lives in the volatility environment

A long put is a long volatility position bought with premium. Practitioners generally observe that implied volatility on index puts tends to rise as prices fall, so a put frequently gains from both effects at once — and, symmetrically, that buying one after a sharp fall means paying for volatility that has already arrived.

Descriptive, not a rule about when to use it.

What can go wrong

• Time runs out, the ordinary outcome for an out-of-the-money put.
• Volatility collapses. Buying protection during a panic means paying the elevated price for it; if the panic passes, vega gives back much of the gain.
• The floor caps the best case. The most a put can be worth is its strike. A far out-of-the-money put is cheap because its maximum is small, not only because it is unlikely.
• Dividends move the strike’s worth, not the contract: a large special dividend lowers the underlying and raises the put, which is a real effect and not a mispricing.
• No assignment risk. The holder chooses whether to exercise.

Building it in Option Panel

Open Build Strategy and pick Long Put. The builder seeds one long put and offers the strike by delta, percentage or points from the price, offset or exact strike.

Each resolved leg states how the strike was chosen and how far it moved from the request, so a ladder without the exact strike asked for produces an explained substitution rather than a silent one.

Back to the encyclopaedia · What-if analysis in the docs

Related strategies

• Bear Put Spread — the same view with the cost reduced by selling a lower strike, and the gain capped.
• Short Call — the other bearish primitive, entered for a credit, with undefined risk.
• Long Call — the mirror image.