How to Trade a Long Put Option

  • March 27, 2019

Watch our video below on how to trade a long put.

What Is a Long Put Option Strategy?

  • A long put option strategy consists of buying a put option contract, which means that you are bearish on the underlying security. You can buy an ITM, OTM, or ATM strike and need to choose an expiration date that coincides with your risk tolerance.

Do you know what a long put means in options trading? Options are popular trading vehicles use to grow small accounts into large ones as well as speculate and hedge bets. Watch our video above on long put options and how they work. 

Options have a strategies to profit in any market. Whether the market is up, down or trading sideways, you can make money. Hence their popularity and why it's important to know what a long put is.

Did you know that a long put is just another name for buying a put? If you're new to options trading you may be overwhelmed by what you're coming across.

​Now we're adding another term for you to remember? The more you delve into options, the more you'll see strategies have more than one name they go by.

As a result, pick the name you're most comfortable with and stick with it. If buying a put is easier to remember than long put, then by all means, stick with buying a put.

They're the same thing after all. However, if you're aware that they have other names, you won't be caught off guard if you hear someone talking options and using different terminology.

When you're learning to trade getting caught up in the minutia of all the terms isn't as important as learning the strategy. Trading services like ours are here to teach you the strategy of the long put as well as other options trading strategies.  

long put

1. Why Trade Options?

Options have become increasingly popular because of their ability to trade large cap stocks less expensively. As a result, you have the ability to grow a small account trading the large cap stocks as opposed to penny stocks.

However, both options and penny stocks are risky. Although one is riskier than the other. Knowing options strategies like the long put or buying put options allows you to make money in a bear market.

Options give you the right but not the obligation to buy (call) or sell (put) a stock at a predetermined price within a set time. In other words, going long means you're paying the premium to control shares.

One contract controls 100 shares. Hence the more contracts you buy, the more shares you control. Owning those shares outright is going to be more expensive than paying the premium on them.

Options have moving parts, like extrinsic value, which makes them seem scary and overwhelming to the new trader. However, they're great vehicles for making money no matter what the market is doing. 

Like with anything that's worthwhile, it takes a little bit of time and dedication. Take our options trading course if you want to demystify options.

2. Shorting vs the Long Put

A long put is buying a put option. Buying a put options means you're bearish on the trade. If you were to look at the stock trading equivalent, it'd be short selling.

When you short a stock, you're borrowing shares from your broker with the belief that the stock is going to fall. If it does, you cover or buy back the shares.

The shares revert to your broker and you get to keep the profits. The long put is very similar to the short selling strategy.

When you believe a stock is going down, you'd buy a put. The great thing about options trading is that most brokers offer options trading whereas most broker's don't have shares to short.

As a result, you'll never be left sitting on the sidelines in a bear market with options. It also means you can basically short the large cap stocks when you take the long put position.

long put

3. Know When to Take a Long Put Position

Do you know when it's time to take a long put position? Buying a put means you're bearish on a stock.

The long put is also the most basic of options trading strategies. However, buying a naked put is also one of the riskiest options trading strategies.

As a result, you need to make sure you're 100% accurate on your direction. There's no magic formula that's going to help you see where a stock's going to go.

However, candlesticks, patterns, and technical analysis along with support and resistance help. They form the big picture as to whether or not you should take a long put position.

With shorting, you have the ability to lose an infinite amount because a stock can continue to move up in price forever. With a long put, while a stock can continue to rise in price forever, you'd only lose the amount of the trade.

Hence the need to know what the charts tell you. While you'll never win on a trade 100% of the time, use the charts to help you find direction.

Is Buying a Put Bearish?

  • Buying a put is a bearish options strategy. Selling a put is the opposite and is a bullish strategy. The odds are more in a traders favor being an options seller over an options buyer.

1. Know When to Close Your Trade

If you bought a put with the belief that the stock was going to head down, you need to have a profit target as well as a max loss. Trading is emotional.

When you let emotions control your trades, you're going to find out pretty quickly the majority of your trade will go against you. That's why the best traders make a trading plan.

Then stick to that plan. Having a goal helps to keep you focused. You're not wondering when you should take profits or when to take a loss.

​Many a new trader has quit because they traded without a plan. You don't want to be in our trading rooms using real money without a plan.

If you have to ask one of the traders in the room for an exit, you're gonna take a loss. Learn the patterns and candlesticks that signal reversals. That way if you haven't hit your profit target, you know when to get out.

If you have a profit target, stick to it. If you stay in a trade past your profit target to get more money, chances are you'll end up taking a loss.

Letting greed control trades is the best way to blow up your brokerage account.

The Bottom Line

A long put is the same as buying a put option. You only do this when you believe a stock is going to move down in price. Make sure to practice options trading before using real money. As a result, you'll work out the kinks and figure out how all the moving parts work together. 

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  • so there is a defined loss buying a put ?

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