Course contents
The long put
A long put profits from a fall with loss capped at the premium, the limited-risk way to bet on a decline. Bought against shares you own, it is insurance, a protective put that sets a floor.
- Explain the bearish and the protective use of a long put
- State the maximum loss, breakeven, and payoff
- Work a protective-put example on a holding
The long put is the mirror of the long call, and it wears two different hats. It is the way to profit from a fall with limited risk, and it is insurance on shares you already own. Both uses come from the same simple position: buying the right to sell at a fixed strike.
The bearish view
You buy a put when you expect the underlying to fall, meaningfully and soon. As the price drops below your strike, the put gains value. The payoff mirrors the call: your maximum loss is the premium, your breakeven is the strike minus the premium, and below breakeven your gain grows as the price falls, bounded only because a price can fall no lower than zero.
| Infosys at expiry | Outcome per share on a 1,480 put bought for 15 |
|---|---|
| 1,480 or above | lose 15 (the premium) |
| 1,465 | breakeven |
| 1,400 | profit 65 |
Multiply by the lot for the real rupees.
The limited-risk way to bet on a fall
A put is not the same as short-selling the stock. Short-selling can lose far more than you put in if the stock rises, because there is no ceiling on a price. A long put caps your loss at the premium, no matter how high the stock climbs. That capped risk is the put buyer's comfort, and it is why a put is the sensible way for a beginner to act on a bearish view.
The other hat: insurance
The second use is the opposite of a bet. If you own shares and fear a fall, a put is insurance. Buy a put on shares you hold, and it sets a floor: below the strike, the losses on your shares are offset by gains on the put. You pay a premium for that protection, exactly like an insurance premium, and if the stock holds up, the premium is all you lose. This is called a protective put.
How a long put loses
As a bet, a put loses the same three ways a call does, mirrored. The stock may not fall enough and finish above the strike, so the put expires worthless. It may fall too slowly, and time decay drains the put in the meantime. Or you may have overpaid on high implied volatility, since fear tends to lift put premiums, and been caught when volatility fell. Puts often carry richer volatility than calls precisely because people buy them for protection, so overpaying is a real risk.
What to carry forward
A long put is the mirror of the long call and serves two purposes. As a bet, it profits as the underlying falls below a breakeven of strike minus premium, with loss capped at the premium, which makes it the limited-risk way to act on a bearish view. As insurance, a protective put on shares you own sets a floor under their value for the price of the premium. Like the call, it loses if the move is too small, too slow, or bought at inflated volatility.
You have now met both buying positions. The next chapter turns to the other side of the trade, selling options, and it is the one to approach with the most caution in this whole course.