Since we have already explained a ‘Long Call’ earlier, let us now understand a ‘Long Put.’
A long put involves buying a put option. It is a bearish strategy. A long put strategy is associated with unlimited profit potential and limited losses or risk to the extent of the premium paid. A trader profits from a long put strategy when the underlying asset falls below the strike price.
A long put normally increases in value from a decline in the underlying stock or volatility expansion. It declines in value from a rise in the underlying stock, time decay, or volatility contraction of the underlying asset.
Below is the illustration of the payoff diagram of a Long Put Option:
The key to becoming a successful option trader is to select the best strike price and time frame to match your risk profile and goals.
The lower the strike price of a put, the premiums are lower. And the lower the delta, the greater is the leverage. At-the-money (ATM) and Out-of-the-money (OTM) options seem lucrative for put option buyers, when they are bearish on the underlying asset or the overall market.