Short Put vs Long Put Explained

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In the world of options trading, what is the difference between trading a short put and a long put?

A long put option gives you the right, but not the obligation to sell an underlying asset at a specific price at a specific date in the future.

Therefore, if you sell a put contract, as in “sell to open,” you take on the obligation of having to buy an underlying asset at a specific price in the future.

If you buy a put contract, as in “buy to open,” you retain your right, but not the obligation, to sell the underlying asset at a specific price at a specific date in the future. It is always the sellers of options who can be assigned an underlying asset (depending on the asset’s specifications) at any time.

Simply put, no pun intended, a short put compared to a long put is exactly like it sounds: they are opposite options trading strategies.

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A short put graph looks like this:

Graph showing the potential profit/loss of a short put option strategy at expiration.

A long put graph looks like this:

Graph showing the potential profit/loss of the long put option strategy at expiration.

Is the Profit/Loss the Same for a Short Put vs a Long Put?

The short put option strategy and the long put option strategy both have a limited loss as well as a limited profit. The limited loss for a short put, however, is far more severe than for a long put.

The risk when purchasing a put is always that the put premium will decline in value and will expire worthless. The price of the premium is always the maximum possible loss for a long put.

For a short put, the underlying asset technically has the possibility of going to zero. Although this means that the maximum loss is not unlimited, the maximum loss is severe. Consequently, this means the maximum profit for a long put is very substantial.

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