Following on from part one here is a breakdown of long puts. If you’d like to check out part one: Options Terminology 

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Firstly, what is a long put? The purchase of a put option

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A long put gives the contract holder (buyer) the right but not the obligation to sell a specified quantity of an Underlying Asset, such as 100 Apple shares, at a pre-agreed price (Strike Price) before or on a specific date (Expiration Date)

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Puts are commonly used as a potential form of protection against losses and can be used by investors seeking to potentially profit if the value of the Underlying Asset decreases without owning the asset.

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Be mindful, options are considered high risk investments due to their complex nature.

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Example:

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Apple shares are trading at $170.00

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I can buy an Apple $165.00 (Strike Price) Put for $3.00 (Premium) that expires on 16th June (Expiration Date)

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The contract contains 100 shares, resulting in a total premium of $300.00

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To breakeven, Apple would need to decrease to $162.00 (Strike Price - Premium) by expiration

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By expiration, if Apple’s shares are trading at $150.00, I have the right to sell 100 Apple shares for $165.00 each

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I have mitigated potential losses as I can sell the shares for $165.00 each instead of $150.00

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If I do not own 100 Apple shares, I could buy the shares at $150.00 each and sell them for $165.00 with $15.00 in proceeds and $12.00 profit ($15.00 - $3.00 Premium) per share

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Total Proceeds: $1,500.00

Total Premium: $300.00

Total Profit: $1,200.00

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Remember! When investing you may incur additional costs such as broker and exchange fees