Description Put buying is a strategy used if the investor thinks that XYZ will decline in price. It is often used in place of a short sale in XYZ stock. The speculative Put buyer looks for leverage, emphasizing the number of options he or she can purchase. The "insurance" Put buyer looks to protect a long position in the stock for a period of time covered by the option. Put Purchase vs. Short Sale: Prior to exchange-listed options, the average investor only had one choice if he or she wanted to put a bearish opinion into action - sell XYZ short. Now, with Put options, the investor can establish a bearish position while controlling the trade-offs between the position's risk and reward. Along with the difference in the profit and loss profiles, there are other non-dollar specific benefits as well. Risk/Reward Characteristics Break-even Point: At expiration, the break-even point is equal to the strike price of the Put option minus the Put option's premium. Before expiration, the break-even point is higher. Profit: Profits are unlimited as long as the underlying stock continues to decline. Loss: Losses are limited to the premium paid for the option. Time Decay: Negative. A Put option's premium consists of both intrinsic value (if any) plus time value. As time passes, the time value portion of the Put erodes (i.e., decays). At expiration, the Put's value will equal its intrinsic value. Changes in implied Volatility: Changes in the option's implied volatility has an effect on the "time value" portion of an option's premium. Thus, a change in the option's implied volatility has the same effect as changing the number of days remaining until the option's expiration. | 
