Put Long
| Range | Value |
|---|---|
Market expectation | Falling prices |
Construction | Put Long |
Profit potential | (Almost) unlimited |
Risk of loss | Limited |
Time effect | Negative |
Volatility effect | Positive |
Market expectation
If you expect prices to fall significantly, a put long is recommended. The more negative the expectation, the lower you can set the strike price. This promises low premiums and, thanks to the leverage, advantages when prices fall.
Profit potential
A put long offers almost unlimited profit potential if prices fall sharply.
The break-even point is the base price minus the (paid) premium.
The maximum profit is when the price of the underlying falls to 0. As a result, it is (theoretically) limited to the strike price minus the (paid) premium.
Risk of loss
The loss is limited to the option premium. It occurs if, contrary to expectations, the underlying asset trades above the strike price.
If the price is between the strike price and break-even, you suffer a partial loss.
Time effect
The put long has a negative time effect, as the chances of the option being exercised profitably decrease as the remaining term decreases.
Volatility effect
If the volatility of the underlying increases during the remaining term, the chance of a rewarding exercise increases.