Keep in mind, the premium you paid for the option would technically eat into your stock profits, but as with any insurance policy, it would be a tradeoff you were willing to make. Put options work this way for more than just stocks. You can buy them for corporate bonds , banknotes, commodity futures , currency exchange contracts, index funds , exchange-traded funds ETFs , derivatives, and other financial instruments that experience price movements.

A put option is simply the right to sell any of these securities at a predetermined price for a specified length of time. Buying and selling options rather than the underlying stock is known as options trading. There are several strategies used by option traders, and a put option is one tool in the toolkit.

While owning a put option gives you the right to sell a security, owning a call option gives you the right to purchase a security. In either case, you are under no obligation to buy or sell anything. The contract just gives you the option to do so if the conditions are right within the specified time frame. You may purchase a call option if you think the price of something will go up. You may purchase a put option if you think the price of something will go down. Investors should absolutely consider their investment objectives and risks carefully before trading options.

Supporting documentation for any claims, if applicable, will be furnished upon request. Examples are hypothetical, and do not reflect actual or anticipated results, and are not guarantees of future results.

A budget is an estimate of how much money you expect to receive as revenue, and plan to use for expenses, over a given period of time. An adjustable-rate mortgage is a type of home loan agreement where the can change periodically over the life of the loan. Customer service is the process of providing assistance and advice to people who have purchased or who may want to purchase a good or service.

Price discrimination is a strategy in which a business charges different prices to different customers for the same goods or services. Updated March 11, Ready to start investing?

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Sign up for Robinhood. What does it mean to buy a put option? Here are three important terms: The strike price is what you can sell the shares for. Why would a person buy a put option? What is the difference between call options and put options? What is an Option? What are Futures? What is a Strike Price? What is the Stock Market?

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What is a Security? What is a Budget? What is a Candlestick? As long as the stock is above or below your option's strike price — for the call or the put, respectively — you stand to win. Both types of options are considered long, in the sense that both are buy positions and both let you make money on the direction of the underlying stock. However, the long call is the more bullish sentiment, because you're betting that the stock price will rise.

The long put option is a more bearish view because you're anticipating, and hoping to profit from, a fall in the stock price. A long put option can also serve as a hedge, or insurance, against a bad outcome with a long call option or an outright purchase of stock. Yes, you're betting against yourself, in a way, but at least you stand to benefit a bit if the stock falls instead of rises, mitigating your overall loss. Long option positions require less investment, or cash down, than outright investments.

Instead of spending thousands on a stock, you just spend a few hundred on the option, giving you more leverage for less money. Of the two options, long calls are more common — or at least, what's more commonly thought of as a long options position.

And, like buying stock outright, they are essentially optimistic. Long puts, pessimistic bets that a stock will fall, are more often used as insurance against a bad outcome with a long call, or with an actual ownership position. But in a way, both long options can be considered bullish: Both are buy positions, affording you a chance to make money on the moves of the underlying stock.

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Twitter LinkedIn icon The word "in". LinkedIn Fliboard icon A stylized letter F. Flipboard Link icon An image of a chain link. It symobilizes a website link url. Copy Link. In options trading, going long means owning one of two types of options: a long call and a long put.