Long put
Buy a put option. Profit if the stock falls below the strike minus premium paid. Loss is capped at premium; max profit is bounded by the stock going to zero.
How a long put works
A long put gives you the right to sell 100 shares at the strike price before expiry. You pay a premium for it, and that premium is the whole of your risk. It is the cleanest way to take a bearish view without shorting stock — no borrow to locate, no margin call, no possibility of losing more than you put up.
That last point is the real argument for puts over short stock. A short position has theoretically unlimited loss and can be closed out against your will if the borrow disappears. A put cannot cost you more than you paid, and nobody can take it away from you before expiry.
The cost is the same one every long option carries: time decay, and a breakeven below the strike. You need the stock under the strike by more than the premium before the trade makes anything. A put also faces a structural headwind — implied volatility usually rises when markets fall, which helps a put, but downside strikes are priced with that expectation built in, so you are rarely getting the move cheaply.
A worked example
XYZ trades at $100. You expect weakness over the next two months and buy one $95 put expiring in 60 days for $2.50 per share.
Maximum profit is capped by arithmetic rather than by design: a stock can only fall to zero, so the ceiling here is ($95 − $2.50) × 100 = $9,250. Unlike a call, the upside is finite.
When a long put fits — and when it doesn't
- You want defined-risk downside exposure without the borrow and margin mechanics of short stock.
- You have a bearish thesis with a date attached — a catalyst, a guidance cut, a deteriorating trend.
- Implied volatility is low relative to its recent range, so the protection is not already priced in.
- The market has already sold off hard. Put premiums inflate exactly when everyone wants them.
- Your view is a slow grind lower. Decay can outpace a gentle downtrend.
- You are buying a put purely as insurance on shares you own — a protective put or a collar is the structure built for that.
Common questions
Done planning? Log the trade.
Sutekka journals every leg automatically — and shows you the actual P&L when you close it. Free forever.
Start logging — free