Buying or “Going Long” on a Put is a strategy that must be devised when the investor is Bearish on the market direction going down in the short-term.
A Put Option gives the buyer of the Put a right to sell the Stock (to the Put Seller) at a pre-specified price and thereby limit his risk. “Being Long” on a Put Option means the investor will benefit if the underlying Stock/Index falls down. However, the risk is limited on the upside if the underlying Stock/Index rallies.
Investor View: Bearish on the Stock / Index.
Risk: Limited to the premium paid.
Breakeven: Strike Price – premium paid.
Eg. Nifty is currently trading @ 5500. Investor is expecting the markets to fall down from these levels. So buying a Put Option of Nifty Strike 5500 @ premium 50, the investor can gain if Nifty falls below 5450.