WHAT IS A LONG PUT? Straight to the Point #STTP #152

In around two minutes you will know what is a Long Put. You will get both professional definition and easy explanation. No intro, no outro, straight to the point.

Long Put means buying a put option with the expectation that the value of an underlying security will decrease.

And if you are not sure what a put option means, feel free to check one of my previous videos.

Let’s say at this moment the price of Apple shares is $142. And you expect that this price will drop in the future. So, in order to profit from this, you decided to buy a put option. In another words, you initiated a long put.

Here are two ways how you can profit from now on.

The first way is as following. If you already own Apple shares and you bought a put option with the strike price of $135, you reserve the right to sell you Apple shares at $135 and no less.

So, in case the price indeed goes, let’s say, to $120, you can exercise your option right and sell them at $135 each.

The second way you can profit from going long put is the following. Let’s assume you purchased the same option with the strike price of $135. And you paid theoretical $30 for it.

But here is the deal. The lower the price of an underlying security goes, which are Apple shares in our example, the more expensive your option becomes. For example, if the price of Apple shares goes to $120, your option will be worth theoretical $50 now.

So, now, instead of exercising your right to sell shares, you can simply sell your option, profiting from the difference from what you’ve paid and what you are about to receive.

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