Long puts allows investors to participate in downward price moves in underlying stocks and indices just as long calls do for upward price moves. Importantly both long puts and calls provide exposure for a limited
Purchasing puts without owning shares of the underlying stock is a purely directional strategy
used for bearish speculation. The primary motivation of this investor is to realise financial reward from a decrease in price of the underlying security.
Experience and precision are key in selecting the right option (expiration and strike price)
for the most profitable result. In general, the more out-of-the-money the put purchased is the
more bearish the strategy, as bigger decreases in the underlying stock price are required for
the option to reach the break-even point.
A long put offers a leveraged alternative to a bearish, or "short sale" of the underlying stock,
and offers less potential risk to the investor. Purchasing a put generally requires lower up-front capital commitment than the margin required to establish a short stock position. Regardless of market conditions, a long put will never
require a margin call. As the contract becomes more profitable, increasing leverage can result in large percentage profits