A long put is an options trading strategy used by investors who expect a decline in the price of the underlying asset, such as a stock. It involves purchasing a put option, which gives the holder the right, but not the obligation, to sell the underlying asset at a specified strike price before or at the option’s expiration date.
Traders employ the long put strategy to profit from a potential decrease in the asset’s price. When purchasing a put option, they pay a premium to the option seller in exchange for the right to sell the underlying asset at the predetermined strike price, regardless of the current market price. The maximum potential loss for the holder of a long put is limited to the premium paid for the option.
If the underlying asset’s price decreases below the strike price, the value of the put option rises, allowing the investor to profit. However, if the asset’s price remains above the strike price or does not decrease enough to cover the premium paid, the long put strategy may result in a loss limited to the initial premium amount. Long puts can serve as a form of hedging or as a speculative strategy to capitalise on anticipated downward price movements in the underlying asset.
To know what is a short put click here. What is short put?