Bullish Patterns
Long Calls
Bull Call Spread
Bull Put Spread
Call Backspread
Long Call Ratio Spread
Naked Put
Synthetic Long Stock
The Collar
Covered Calls
Synthetic Long Call
Synthetic Short Put
Covered Straddle
Covered Strangle
Married Put
Protective Put

Bearish Patterns
Long Puts
Bear Put Spread
Bear Call Spread
Put Backspread
Long Put Ratio Spread
Naked Calls
Synthetic Short Stock
Synthetic Short Stock (split strikes)
Covered Put
Protective Call
Synthetic Short Call
Synthetic Long Put

Long Volatility
Long Straddle
Long Strangle
Short Call Butterfly
Short Put Butterfly
Short Iron Butterfly
Short Call Condor
Short Put Condor
Short Iron Condor
Long Guts
Short Call Ladder
Short Put Ladder
Long Call Synthetic Straddle
Long Put Synthetic Straddle

Short Volatility
Short Straddle
Short Strangle
Long Call Butterfly
Long Put Butterfly
Long Iron Butterfly
Long Call Condor
Long Put Condor
Long Iron Condor
Short Guts
Long Call Ladder
Long Put Ladder
Call Ratio Spread
Short Call Ratio Spread
Put Ratio Spread
Short Put Ratio Spread
Ratio Call Write
Ratio Put Write
Short Call Synthetic Straddle
Short Put Synthetic Straddle
Variable Ratio Write

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Long Puts

Risk: limited
Reward: very big

General Description
Entering a long put entails buying put options.

(draw a long put risk diagram here)

The Thinking
You're bearish; your research tells you a stock has a chance to experience a solid correction. Instead of shorting the stock (which may be expensive or not possible), you buy put options. You can buy out-of-the-money puts that are cheap (you're rolling the dice that a huge move down is coming) or in-the-money puts that will move close to point-for-point with the underlying. If your analysis is correct, and the stock does indeed drop, you'll be rewarded.

XYZ is at $47, and your analysis tells you a move to the low 40's is coming. You could short 1000 shares of the stock for $47,000 but instead opt to buy (10) 50 puts for $4.00 each.

Above $50 the puts expire worthless, and you’ll lose your entire investment.

The breakeven is $46 (the strike minus the cost of the puts).

Below $46 you’ll make money point for point with the underlying. For example, if the stock moves to $40, the puts will have increased in value from $4.00 to $10.00 ($6.00 profit per contract).

The PL chart below graphically shows where this trade will be profitable and at a loss.