10 basic options strategies

3. Put

Buying or selling a put is the second way of expressing a pure directional bias. A put gives the buyer the right, but not the obligation, to sell the underlying instrument at the exercise price. Long or short puts are the second type of basic option legs most other strategies will make use of.

Long Put: Used when you are very bearish the market. Just as a long call gives you unlimited upside profit potential, a long put gives you nearly unlimited downside profit potential (limited of course by the underlying hitting $0). Loss is limited to the premium paid if it expires above A. Just as with calls, less expensive out-of-the-money puts will not appreciate in value at the same rate as the underlying.  

Short Put: If you are very bullish the market, rather than buying a call, you can short a put whereby you agree to buy the underlying if price falls below the exercise price of the option. Maximum profit is the premium you received for selling the put, whereas loss is open-ended if the market moves against you.

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