The long put option is a bearish strategy that allows an investor to profit from a decline in the price of an underlying stock by buying a put option and selling the stock at a higher strike price if the stock price falls below the breakeven point
Details:
The long put option is a bearish options trading strategy that allows one to profit from a decline in the price of an underlying stock. In this strategy, an investor buys a put option, which gives them the right, but not the obligation, to sell a stock at a predetermined price (strike A). If the stock price declines below the strike price, the investor can exercise the put option and sell the stock at the higher strike price, resulting in a profit. If the stock price declines below the strike price, the investor can exercise the put option and sell the stock at the higher strike price, resulting in a profit.
However, if the stock price does not decline below the strike price before the put option expires, the investor will not be able to exercise the option and will lose the premium paid for the option. The maximum profit for a long put strategy is the strike price minus the price paid for the option, while the maximum loss is limited to the premium paid for the option. The value of the put option will also decrease as time passes and is sensitive to changes in volatility.
Breakeven:
Leg 1 minus the cost of the put
Sweet Spot:
The Stock goes down.
Max Profit:
Theoretically, unlimited profit, if the stock goes to zero
Max Loss:
Risk is limited to the premium paid for the put option