Long Put Option Screener

Hi, and welcome to the Options Learning Center. I'm going to show you how to buy puts and use Barchart to get the most out of the strategy.

What Are Put Options?

Put options give the buyer the right but not the obligation to sell a specified asset (underlying asset), at any time before the expiration date. Every put option is equal to 100 shares of the underlying asset.

Long puts are a bearish strategy that earns more profit as the underlying asset's price moves below the trade's breakeven price.

Long Put Strategy

• Long Put is used when you are bearish on the market.
• Each put option = 100 shares
• It gives you the right to sell 100 shares of the underlying asset at a specified strike price.
• The option is valid before the expiration date
• You profit when the underlying asset's price drops.
• You earn more when the underlying asset's price is below the breakeven price.

Investors usually buy long puts to protect their underlying assets from a loss. Think of it as a protective hedging strategy. The put option will gain value if the underlying security moves below a certain point.

Buyers usually profit from long puts by selling them back to the market if the premium received for the long put is higher than the premium paid at the start of the trade.

Alternatively, investors holding long puts can exercise the option and sell their shares at the strike price, regardless of how much the asset's price decreases.

Long Puts for Protection

• Protect shares you own from losses with long puts
• Acts as a hedging strategy
• Gains value if the asset's price drops
• You profit by selling the put
• When you exercise the option, you sell the stock at the strike price

Traders sometimes use a stop-loss for their shares to protect their profits or minimize losses. However, that automatically sells your shares when the underlying stock reaches the stop-loss price. Temporary price drops can significantly impact your profitability here. Not only that, but stop losses aren't guaranteed as they initiate a market order once a certain dollar value is crossed.

A put option allows you to protect your shares with a larger degree of flexibility.

Stop-Loss vs. Put Option

• Stop-loss: Use to protect profits and minimize losses
• A stop-loss automatically sells shares at the stop-loss price
• Temporary drops in price impact profitability
• Stop losses not guaranteed, as the market order triggers
• A put option gives you greater flexibility for protection

Trade Example

Long puts are often used to protect shares that you already own. Barchart makes that easy by allowing you to screen for long puts using the underlying symbol.

Let's say, for example, that you own 100 shares of Nvidia, with a cost basis of $90 per share. Today, Nvidia's price is $126.57, but you're worried it might start to move down. Not only that, but the charts and technical analysis also indicate a potential bearish reversal or sideways movement shortly. However, you do not want to sell your NVDA shares yet, as the reversal might not happen or may be temporary.

• You own 100 Nvidia shares
• Cost basis: $90 per share
• Current price: $126.57
• Concern: Potential price drop
• Technical analysis: Bearish reversal or sideways movement
• You don't want to sell your NVDA shares yet

You want to protect your NVDA shares from moving below $121, and at the same time, retain the possibility of selling them at a higher price within 6 months. In this case, you can buy a long put with a strike price between those values and set an expiration date 6 months out.

For this example, we'll buy the $121 strike. The asking price is $16.60. But remember, since 1 put equals 100 shares, the contract price is $1660.

Setting Up the Long Put

• Choose an expiration date about 6 months out (your downside protection)
• $121 strike, ask price $16.60
• Contract price: $1660 (100 shares)

Now you have 6-months of downside protection for your NVDA shares. But it doesn't end there. You'll also need to know your breakeven point on this trade.

Now you might say, "why am I not profitable if the stock moves below $121?"

Well, you also have to wait for the stock to drop as much as the premium you paid before seeing a profit.

Your long put will start to become profitable if Nvidia stock trades below $104.40. That's the strike price minus the premium paid to enter the trade.

Calculating Breakeven

• Breakeven = Strike price ($121) minus premium ($16.60)
• Breakeven point: $104.40
• Profit starts below $104.40

Let's assume Nvidia crashed and started to trade around $70 three months from now. At this point, about three months of time value is left on the option. In this case, the option will be worth more than you paid. You'll have $51 of intrinsic value and likely another $10 of extrinsic value, making the premium around $61.

Nvidia Crash Scenario (3 Months Later)

• Nvidia trades at $70
• 3 months of time value left
• Option value: $51 intrinsic + $10 extrinsic
• Premium: $61

At this point, you have a choice to make. Do you sell your put option, or exercise it?

Decision Point

Since there is still a lot of time value, you'd be better off selling your long put at the market price of $61 a share, or $6100. You'll make a profit of $4440 on the put option trade. But remember, based on your entry price of $90 for the stock, you'll have a loss of $20 a share for your Nvidia stock, or a loss of $2000.

The beauty of selling the put, or closing it out, is that you don't have to sell your shares. You could just sell the put, and keep the shares… especially if you believe they'll go back up in price. Or if you have no faith in Nvidia, you could cut your losses and sell the stock as well.

Now, let's assume that NVDA hits $70 around the expiration date. You can exercise your put or sell your shares at $121 each. And since your purchase price is $90, you will retain a good chunk of profit minus what you paid for the protective put. Or, you can sell the put back to the market - and at this point, it will have about $51 of intrinsic value. Since the expiration is around the corner, there won't be much extrinsic value left, so the option price will likely be around $51.

NVDA Drops to $70 Scenario

• Exercise Put: Sell shares at $121
• Purchase Price: $90
• Profit: Retain profit minus put cost
• Sell Put Option: Market value ~$51
• Intrinsic Value: $51
• Extrinsic Value: Minimal near expiration

So as you can see, buying a put on an asset you own can provide you with downside protection. In this case, if you didn't buy the put, you'd have registered a $2000 loss. However, the long put saved the day, and you would have come out ahead by $1440.

$121 - $90 = $31 - $16.60 = $14.40 x 100 = $1,440

On the other hand, if Nvidia's price increases over those 6 months, your long put will begin to lose value. And if Nvidia's stock price stays above $121 at expiration, the option expires worthless. Think of it as an insurance policy that you thankfully didn't have to use.

Customizing the Long Put Screener

You may prefer to tailor-fit your screener to reflect different strategies and risk profiles. You can access the screener by going to the Options section and selecting the Long Put Screener.

You are then immediately provided a list of potential long puts and relevant details like implied volatility, delta, premium price (Ask), ITM Probability, and OTM Probability.

Clicking on any of these column headings will arrange the values from lowest to highest or vice versa, so you can look for long puts that fit your preference and trading strategy.

To customize your screener, click on the Set Filters tab. You can select from dozens of filters, such as option details, analysis, and even underlying stock information.

Use the search box to find a filter, or use the filter category drop-downs to find the data you want to screen for.

Screen for a Specific Asset

You'll want to add a filter to search for the company ticker you own. On the Set Filters tab, search for and add the SYMBOL filter:

Pros & Cons of Long Puts

Think of a long put like an insurance policy. They're suitable if you have a bearish outlook and like an insurance policy, the risks are limited to the premium you paid at the start of the trade.

Now, you don't have to buy puts on stock you own. Long puts can be very profitable if used for speculation, but you have to get the direction right.

Long Puts

• Similar to an insurance policy
• Suitable for bearish outlook
• Risk is limited to the premium paid
• You don't need to own the stock
• Profitable for speculation if the direction is right

Don't forget, long puts are time sensitive (called theta decay) as long options lose value as they get closer to expiration. As such, using long puts requires accurate timing. For that reason, it's not uncommon to buy puts with very long expirations. In some cases, expirations are more than a year out.

Conclusion

As you can see, long puts can be a versatile options trading strategy to protect your positions. Using tools like Barchart's Long Put Options Screener and supplementing your trading knowledge through the Options Learning Center can help ensure success in your options trading and help you get the edge to find that perfect trade.