Long Puts Are a Viable Option

Let this be a reminder to all option traders who have abandoned buying calls and puts: Don’t forget to consider them an option. Long calls and puts were the first trading strategies I learned as a brand-new retail option trader, but most option traders I’ve encountered over the years tend to forget about them. In a market like the one we have experienced over the past several months, however, wouldn’t a long put be a more than viable option?

Long Put in NVDA

Take a look below at a recent daily chart of NVDIA Corp. (NVDA). The stock has been moving lower since the beginning of April. An option trader with a bearish outlook might have waited until the stock broke below the previous support level at $212, but the stock still dropped another $40. Although selling a call spread would have worked well too, a long put gives the option trader much more potential to profit, especially if he or she is right and the stock loses value as NVDA did.

Hindsight Is 20/20

Of course, not everyone would have the foresight to profit on this position as it falls below support another $40, but many of those big down days might have been profitable long put trades too. Negative delta, positive gamma and positive vega (if implied volatility increased) could have all contributed to potential profit. Negative theta might have been the only drawback.

Final Thoughts

Way too many times I see option traders default to just selling premium, even with a directional bearish bias as we have seen over the past couple of months. When expecting a move lower, buying a put should always be considered an option. It might just return a profit that hits it out of the park.

John Kmiecik, Market Taker Mentoring

Trader Education