Name: Long Put
Setup: Buy (long) a put
Break-Even: Strike – Price paid for call
Max Profit: Limited: Underlying cannot fall below $0.00
Max Loss: Limited: Price paid for the put
Margin: No margin needed since put is bought outright
Time Decay: As time passes the put will drop in value. To offset rapid time decay typically put options are purchased 60-150 days from expiration.
Implied Volatility: Over the life of the option you want implied volatility to increase, thus increasing the price of your option. A decrease in implied volatility will lower the price of your option.
Notes: Purchasing puts deep out-of-the-money because they are cheap will typically result in losses. The purchase of puts is also used as protection against long stock. If you are currently long stock and want to protect or lock in gains from future decline you can purchase a put that will cover any downward movement below the strike price.
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