# Long Put Options: Definition, Examples, and Comparison With Shorting Stock

## What Is a Long Put?

A long put involves purchasing a [put option](https://www.investopedia.com/terms/p/putoption.asp), which allows investors to potentially benefit from a decline in the [underlying asset's](https://www.investopedia.com/terms/u/underlying-asset.asp) value. This strategy can be used for speculation or [hedging](https://www.investopedia.com/terms/h/hedge.asp) against stock price drops, offering limited risk exposure while potentially enhancing portfolio protection. Explore how long puts operate, including strike prices and exercise options, and see how they compare to shorting stock as a bearish investment strategy.

![Long Put](https://www.investopedia.com/thmb/s_kIyaji1w3ZCvHiGbcE5Dt-tIA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/LongPut2-3d94ffb6f6964e578b68c7ec25bd1acd.png)

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### Key Takeaways

*   A long put is a strategy involving the purchase of a put option, anticipating a decline in the underlying asset's value.
*   Long put options provide a way to hedge against potential losses in a long stock position by offering downside protection.
*   Unlike shorting stocks, a long put limits risk to the premium paid while offering profit potential if the asset's price falls.
*   A key advantage of long puts over shorting stocks is that they cap potential losses to the cost of the option.
*   The strategy becomes profitable if the underlying asset's price falls below the option's strike price before expiration.

## How Long Put Options Work

A long put has a [strike price](https://www.investopedia.com/terms/s/strikeprice.asp), allowing the buyer to sell the asset at that price. Assume the underlying asset is a stock and the option’s strike price is $50. That means the put option entitles that trader to sell the stock at $50, even if the stock drops to $20, for example. On the other hand, if the stock rises and remains above $50, the option is worthless because it is not useful to sell at $50 when the stock is trading at $60 and can be sold there (without the use of an option).

A trader can exercise the option to sell at the strike price. Exercising is not required. Instead, the trader can simply exit the option at any time prior to [expiration](https://www.investopedia.com/terms/e/expirationdate.asp) by selling it.

A long put option may be exercised before the expiration if it’s an [American option](https://www.investopedia.com/terms/a/americanoption.asp) whereas European options can only be exercised at the expiration date. If the option is exercised early or expires [in the money](https://www.investopedia.com/terms/i/inthemoney.asp), the option holder would be [short](https://www.investopedia.com/terms/s/short.asp) the underlying asset. 

## Comparing Long Put Options and Shorting Stocks

A long put may be a favorable strategy for [bearish](https://www.investopedia.com/terms/b/bear.asp) investors, rather than shorting shares. Shorting stocks has unlimited risk because stock prices can rise endlessly. A short stock position also has limited profit potential, since a stock cannot fall below $0 per share. A long put option is similar to a short stock position because the profit potentials are limited. A put option gains value only until the stock price hits zero. The advantage of a put option is that risk is limited to the premium paid.

The downside is that if the stock price doesn't fall by expiration, the premium is lost.

To profit from a short stock trade a trader sells a stock at a certain price hoping to be able to buy it back at a lower price. If the stock falls, the put option gains value and can be sold for profit. If the option is exercised, it will put the trader short in the underlying stock, and the trader will then need to buy the underlying stock to realize the profit from the trade. 

## Using Long Put Options for Hedging Strategies

A long put option could also be used to hedge against unfavorable moves in a long stock position. This hedging strategy is known as a protective put or married put.

For example, assume an investor is long 100 shares of Bank of America Corporation ([BAC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=bac)) at $25 per share. The investor is long-term [bullish](https://www.investopedia.com/terms/b/bull.asp) on the stock, but fears that the stock may fall over the next month. Therefore, the investor purchases one put option with a strike price of $20 for $0.10 (multiplied by 100 shares since each put option represents 100 shares), which expires in one month.

The investor's hedge caps the loss to $500, or 100 shares x ($25 - $20), less the premium ($10 total) paid for the put option. In other words, even if Bank of America falls to $0 over the next month, the most this trader can lose is $510, because all losses in the stock below $20 are covered by the long put option.

## Real-World Example of Long Put Option Usage

Let’s assume Apple Inc. ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl)) is trading at $170 per share and you think it’s going to decrease in value by about 10% ahead of a new product launch. You decide to go long 10 put options with a strike price of $155 and pay $0.45. Your total long put options position outlay cost is $450 + fees and [commissions](https://www.investopedia.com/terms/c/commission.asp) (1,000 shares x $0.45 = $450). 

If the share price of Apple falls to $154 before expiry, your put options are now worth $1.00 since you could exercise them and be short 1,000 shares of the stock at $155 and immediately [buy it back to cover](https://www.investopedia.com/terms/b/buytocover.asp) at $154.

Your total long put options position is now worth $1,000 (less any fees and commissions), or (1,000 shares x $1.00 = $1,000). Your profit on the position is 122% = ($1,000-450)/450. Going long put options allowed you to realize a much greater gain than the 9.4% fall in the underlying stock price.

Alternatively, if Apple shares rose to $200, the 10 option contracts would expire worthless, resulting in you losing your initial outlay cost of $450.

## The Bottom Line

The long put strategy can be a valuable tool for bearish investors looking to profit from or hedge against a decline in the underlying asset. Unlike shorting stocks, a long put limits the risk to the premium paid, offering a more controlled way to speculate on price drops.

It's essential to remember that the potential loss is confined to the option's cost, but for the strategy to succeed, the asset's price must fall by the expiration date. Using long puts as a hedge, such as a protective put, can cap losses in long stock positions and provide peace of mind during volatile market conditions.