Under what put circumstance would you buy-to-open (long)?

Answer 1

(1) If I want to take an unhedged bearish position in the underlying and the implied volatility of the option is lower than my expectation of actual volatility of the underlying prior to the expiration of the option.

(2) If I want to open a spread for the underlying and I need the put option as one of the legs of the spread.

I should also mention that the previous answer was incorrect. It said "You can buy a put if you expect the price of a stock to go down and if it does go down the price of the put increases."

The price of an option depends on more than direction the stock price moves. The amount of time before expiration and the implied volatility of the option also have a big impact on the option price. For example, if you bought a put with a strike price of $50 for $2 when the undelying stock was $51, and the stock price declined gradually until it reached $49 at the time the option expired, it is quite likely you never would have a chance to sell the option for a profit.

Answer 2

You would do this if you think a stock is going down. A put option gives the holder of the contract (long side) the right to sell the stock at the option's strike price.

Example, if ACME stock is $50/share and you think ACME will go down in price then might buy a $50 put contract. If ACME goes below 50 you have the right to "put the stock" (sell it) at $50/share.

Answer 3

You can buy a put if you expect the price of a stock to go down and if it does go down the price of the put increases.

You can buy a call if you expect the price of the stock to go up, and if it does the price of the call increases.

These are the only two reasons to go long on options.

Good Luck,
Dana B.