Long Put Payoff & Breakeven
🔑 Position summary — Long put
| Item | Formula / Rule | Page’s worked dollar example (Long 1 ABC Sep 75 put @ $6) |
|---|---|---|
| Market sentiment | Bearish — expectation of falling values | Investor bets ABC’s market price will fall below $75 before expiration |
| Right or obligation | Right to SELL the stock at the strike price | Right to sell ABC stock at $75 per share |
| Maximum gain | 🔑 Strike price − premium | $75 − $6 = $69 per share → at a market price of $0: $6,900 gain |
| Maximum loss | Premium | $600 premium paid (option expires worthless at $84) |
| Breakeven | 🔑 Strike price − premium | $75 − $6 = $69 |
BREAKEVEN TRAP: The page states the formula exactly as Long put breakeven = strike price − premium. Puts SUBTRACT the premium from the strike (calls add). This is the single most-tested calculation in the section.
Note that for a long put the maximum gain and the breakeven share the same expression (strike − premium), but express different things: breakeven is a per-share market price ($69); maximum gain is $69 per share of profit, or $6,900 overall.
Overview
This chapter covers the fundamentals of long put options contracts. To get comfortable with the language used when discussing options, the page directs the reader to watch a video.
- When an investor goes long a put, they’re bearish on the underlying security’s market price.
- Buying a put gives the holder the right to sell the stock at the strike price.
| Market price vs. strike | Status | What happens |
|---|---|---|
| Market price falls below the strike price (⚠️ think “put down”) | In the money | The holder can potentially profit |
| Market price rises above the strike price | Out of the money | The holder won’t exercise; loss equal to the premium paid |
Definitions
| Term | Definition |
|---|---|
| Bullish | Expectation of rising values |
| Bearish | Expectation of falling values |
The contract being analyzed
Long 1 ABC Sep 75 put @ $6
This contract gives the right to sell ABC stock at $75 per share. The option costs $600 ($6 × 100 shares) and expires on the third Friday in September.
The investor is betting that ABC’s market price will fall below $75 before expiration. If it doesn’t, the option expires worthless, and the investor loses the $600 premium.
Math-based options questions should be expected on the exam. They typically ask about potential gains, losses, and breakeven values.
Worked example 1 — market price falls to $0 (maximum gain)
The maximum gain for a long put occurs if the stock’s market price falls to zero.
An investor goes long 1 ABC Sep 75 put @ $6. The market price falls to $0. What is the gain or loss?
Answer = $6,900 gain
Action Result Buy put -$600 Buy shares -$0 Exercise - sell shares +$7,500 Total +$6,900 At $0, the option is $75 in the money. Stock going to zero is uncommon, but it can happen.
To realize the maximum gain, the investor:
- Buys 100 ABC shares in the market for $0 (the shares are worthless)
- Exercises the put and sells those 100 shares for $75 each
That exercise creates a $7,500 gain ($75 × 100). After subtracting the $600 premium paid upfront, the net gain is $6,900.
🔑 A long put’s maximum gain can be calculated with this formula:
Long put maximum gain = strike price − premium
The strike price of $75 minus the premium of $6 gives a maximum gain of $69 per share (or $6,900 overall).
Worked example 2 — market price falls to $60
An investor goes long 1 ABC Sep 75 put @ $6. The market price falls to $60. What is the gain or loss?
Answer = $900 gain
Action Result Buy put -$600 Buy shares -$6,000 Exercise - sell shares +$7,500 Total +$900 At $60, the option is $15 in the money. The investor:
- Buys 100 shares at $60 in the market
- Exercises the put and sells those shares at $75
That locks in a $1,500 gain ($15 × 100). After subtracting the $600 premium, the net gain is $900.
Worked example 3 — market price falls to $69 (breakeven)
Put holders don’t always make a profit. Even if ABC’s market price falls below $75, the holder must recover the premium to have an overall gain.
An investor goes long 1 ABC Sep 75 put @ $6. The market price falls to $69. What is the gain or loss?
Answer = $0 (breakeven)
Action Result Buy put -$600 Buy shares -$6,900 Exercise - sell shares +$7,500 Total $0 At $69, the option is $6 in the money. The investor buys 100 ABC shares at $69, then exercises the put and sells them at $75.
- Exercise gain: $600 ($6 × 100)
- Premium paid: $600
The $600 gain from exercising exactly offsets the $600 premium, so the result is breakeven.
🔑 When investing in puts, the breakeven can be found using this formula:
Long put breakeven = strike price − premium
With a strike price of $75 and a premium of $6, the investor breaks even when ABC stock is at $69 per share. At this market value, there is no profit or loss.
Worked example 4 — market price falls to $74 (in the money, still a loss)
The investor can still have a loss if ABC’s market price doesn’t fall far enough below $75.
An investor goes long 1 ABC Sep 75 put @ $6. The market price falls to $74. What is the gain or loss?
Answer = $500 loss
Action Result Buy put -$600 Buy shares -$7,400 Exercise - sell shares +$7,500 Total -$500 At $74, the option is $1 in the money. The investor buys 100 shares at $74, then exercises the put and sells them at $75.
- Exercise gain: $100 ($1 × 100)
- Premium paid: $600
The $100 gain doesn’t offset the $600 premium, so the net result is a $500 loss.
Worked example 5 — market price rises to $84 (expiration)
Expiration is the worst-case scenario for investors holding long options. In that case, the investor pays a premium for an option that is never used. The same applies to long put contracts.
An investor goes long 1 ABC Sep 75 put @ $6. The market price rises to $84. What is the gain or loss?
Answer = $600 loss
Action Result Buy put -$600 Total -$600 At $84, the option is $9 out of the money and has no intrinsic value. When the market price is above $75, exercising makes no sense - selling for $75 is worse than selling in the market for $84.
So the investor lets the contract expire and loses the premium paid. This is the maximum possible loss for a long put.
Long options can only lose the amount spent on the premium. If exercising would create a loss, the investor will let the option expire.
Long put maximum loss = premium
Worked example 6 — closing transaction
Investors can also perform closing transactions to close their options before expiration.
An investor goes long 1 ABC Sep 75 put @ $6. After ABC’s market price rises to $79, the premium falls to $2, and the investor performs a closing sale. What is the gain or loss?
Answer = $400 loss
Action Result Buy put -$600 Close put +$200 Total -$400 The market price increased, causing the option premium to fall. Premiums aren’t fixed - they fluctuate like stock prices.
- The investor bought the put for $6 ($600 total).
- Later, the investor sold (closed) the put for $2 ($200 total).
That’s a $4 per share loss, or $400 overall ($4 × 100). For closing transactions, compare the premium paid to the premium received.
Visual summary
The page presents “a visual summarizing the important aspects of long puts.”
Key points
Long puts
- Bearish investments
- Right to sell stock at the strike price
Long put formulas
- Maximum gain = strike - premium
- Maximum loss = premium
- Breakeven = strike - premium
Sources
Primary/official references for the material in this chapter. Every link was fetched and returned HTTP 200 on 2026-08-15.
| # | Source | Publisher |
|---|---|---|
| 1 | Long put — max loss = premium, profit as the stock falls | OCC / Options Industry Council |
| 2 | Premium = intrinsic + time value; pricing inputs | OCC / Options Industry Council |
| 3 | Listed options contract specs and index options | Cboe |
| 4 | Achievable Series 65 — chapter 1.4.1.8 | Achievable (course text) |