Long Put Strategy
What is a Long Put?
A long put gives you the right to sell a stock at a specified price within a set time period. This strategy:
- Profits from stock price declines
- Has limited risk (premium paid)
- Can be used for speculation or hedging
- Provides leverage compared to shorting stock
Example
You buy a put option on Lloyds Bank:
- Current stock price: £0.45/share
- Strike price: £0.40
- Premium paid: £0.02/share
- Expiration: 3 months
If Lloyds falls below £0.38 (£0.40 strike - £0.02 premium), you profit. If it stays above £0.40, you lose the premium paid.
Risks
- Time decay works against you
- Need significant price movement to profit
- Option may expire worthless
- Implied volatility changes affect option value
Important: This strategy involves risk and may not be suitable for all investors. Always consider your financial situation and risk tolerance before trading.