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Long Put Vs Short Put Options Trading Strategy Comparison

Compare Long Put and Short Put options trading strategies. Find similarities and differences between Long Put and Short Put strategies. Find the best options trading strategy for your trading needs.

Long Put Vs Short Put

  Long Put Short Put
Long Put Logo Short Put Logo
About Strategy A Long Put strategy is a basic strategy with the Bearish market view. Long Put is the opposite of Long Call. Here you are trying to take a position to benefit from the fall in the price of the underlying asset. The risk is limited to premium while rewards are unlimited. Long put strategy is similar to short selling a stock. This strategy has many advantages over short selling. This includes the maximum risk is the premium paid and lower investment. The challenge with this strategy is that options have an expiry, unlike stocks which you can hold as long as you want. Let's assume you are bearish on NIFTY and expects its price to fall. You can deploy a Long Put strategy by buying an ATM PUT Option of NIFTY. If the price of NIFTY share... Read More A short put is another Bullish trading strategy wherein your view is that the price of an underlying will not move below a certain level. The strategy involves entering into a single position of selling a Put Option. It has low profit potential and is exposed to unlimited risk. A short put strategy involves selling a Put Option only. For example if you see that the shares of a Company A will not move below Rs 1000 then you sell the Put Option of that stock at Rs 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this trade. However, if the price of the underlying moves below 1000 then you will incur unlimited losses.
Market View Bearish Bullish
Strategy Level Beginners Beginners
Options Type Put Put
Number of Positions 1 1
Risk Profile Limited Unlimited
Reward Profile Unlimited Limited
Breakeven Point Strike Price of Long Put - Premium Paid Strike Price - Premium

When and how to use Long Put and Short Put?

  Long Put Short Put
When to use?

A long put option strategy works well when you're expecting the underlying asset to sharply decline or be volatile in near future.

Short Put works well when you're Bullish that the price of the underlying will not fall beyond a certain level.

Market View Bearish

When you are expecting a drop in the price of the underlying and rise in the volatility.

Bullish

When you are expecting the price or volatility of the underlying to increase marginally.

Action
  • Buy Put Option

Let's assume you're Bearish on Nifty currently trading at 10,400. You expect it to fall to 10,000 level. You buy a Put option with a strike price 10,000. If the Nifty goes below 10,000, you will make a profit on exercising the option. In case the Nifty rises contrary to expectation, you will incur a maximum loss of the premium.

  • Sell Put Option

A short put strategy involves selling a Put Option only. So if you see that the shares of a Company A will not move below a 1000 then you sell the Put Option of that stock at 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this deal. However, if the price of the underlying moves below 1000 than you will incur losses.

Breakeven Point Strike Price of Long Put - Premium Paid

The breakeven is achieved when the strike price of the Put Option is equal to the premium paid.

Strike Price - Premium

Compare Risks and Rewards (Long Put Vs Short Put)

  Long Put Short Put
Risks Limited

The risk for this strategy is limited to the premium paid for the Put Option. Maximum loss will happen when price of underlying is greater than strike price of the Put option.

Unlimited

There is no limit to losses incurred in the trade. The risk is when the price of the underlying falls, and the Put is exercised. You are then obliged to buy the underlying at the strike price.

Rewards Unlimited

This strategy has the potential to earn unlimited profit. The profit will depend on how low the price of the underlying drops.

Limited

The profit is limited to premium received in your account when you sell the Put Option.

Maximum Profit Scenario

Underlying goes down and Option exercised

  • Maximum Profit = Unlimited
  • Maximum Profit Achieved When Price of Underlying = 0
  • Profit = Strike Price of Long Put - Premium Paid

Underlying doesn't go down and options remain exercised.

Maximum Loss Scenario

Underlying goes up and Option not exercised

  • Max Loss = Premium Paid + Commissions Paid
  • Max Loss Occurs When Price of Underlying >= Strike Price of Long Put

Underlying goes down and options remain exercised.

Pros & Cons or Long Put and Short Put

  Long Put Short Put
Advantages

Unlimited profit potential with risk only limited to loss of premium.

It allows you benefit from time decay. And earn income in a rising or range bound market scenario.

Disadvantage

You may incur 100% loss in premium if the underlying price rises.

It is a high risk strategy and may cause huge losses if the price of the underlying falls steeply.

Simillar Strategies Protective Call, Short Put, Long Straddle

Bull Put Spread, Covered Call, Short Straddle








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