Buying a Put option is just the opposite of buying a Call option. You buy a Call option when you are bullish about a security. When a trader is bearish, he can buy a Put option contract. A Put Option gives the holder of the Put a right, but not the obligation, to sell a security at a pre-specified price.
A long Put is a Bearish strategy. To take advantage of a falling market an traders buy Put options. If the price of the stock falls, the put option increases. This is one of the most commonly used strategy when an investor is bearish.
A long put is also used by traders in order to hedge against unfavorable moves in a long stock position. This hedging strategy is known as married put.
|Current Nifty index||12100|
|Put Option||Strike Price (Rs.)||12000|
|Break Even Point (Rs.) (Strike Price - Premium)||11750|
This strategy limits the profits to the amount of premium I paid (Rs.150). But the risk is unlimited in case of rise in NIFTY.
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