Long Puts

Buying puts gives you the right to sell shares at the strike price, profiting when the stock declines. It's the primary way to bet against a stock or hedge your portfolio.

When to Buy Puts

Long puts work best when:

• You're bearish on the stock
• Implied volatility is relatively low
• You need portfolio protection (hedging)
• You expect a move within your timeframe

The Setup

• Max Profit: Strike price minus premium (stock goes to zero)
• Max Loss: Premium paid
• Breakeven: Strike price - premium paid
• Ideal IV environment: Low IV rank (options are cheap)

Strike Selection

• ITM puts: Higher probability, acts more like a short stock position
• ATM puts: Balanced exposure, highest time value
• OTM puts: Maximum leverage, lowest cost, insurance-like profile

Puts for Protection

Long puts serve as portfolio insurance. If you own shares and buy puts, you limit your downside while retaining unlimited upside. The cost of this protection is the premium paid.

Common Mistakes

1. Overpaying during panics: Put prices spike when stocks drop; buying then is expensive
2. Wrong timing: Puts decay faster than calls due to volatility skew
3. Too aggressive strikes: Deep OTM puts are cheap but rarely pay off

Consider a bear put spread to reduce cost while maintaining bearish exposure.