In our previous series, we had covered Trading Long Call Option and then we also covered the Trading Short Call Option with Payoff Functions.
In this series we cover the Long Put Option which we will explain with an example and payoff function diagrams of Long Put Options. Now, since you BOUGHT a Put Option, hence you have a LONG position, that's why it is called a LONG PUT option position. However, that is theoretical as we did not consider the price of \$5 you paid for buying the Put Option.
Considering the \$5 price you paid, the payoff function needs to be adjusted for that and since you PAID \$5, it will be taken as negative and hence the theoritical PINK colored payoff function will shift down by that amount (\$5) and then we will have the RED colored payoff function, which actually shows profit and loss considering the price paid for options. Compared to short selling the stock, it is more convenient to bet against a stock by purchasing put options as the investor does not have to borrow the stock to short. Say you were proven right and the price of XYZ stock crashes to \$30 at option expiration date. However, if you were wrong in your assessement and the stock price had instead rallied to \$50, your put option will expire worthless and your total loss will be the \$200 that you paid to purchase the option. Breakeven Point(s)There are 2 break-even points for the long put synthetic straddle position. Every option trader, whether novice or experienced, is aware about the various structures and combinations which can be created by using multiple options.
The Butterfly Options position can be constructed in many ways depending upon the preferences of the option trader using either call or put options.
The name "Butterfly Options" comes because the final payoff structure formed in the Butterfly Options Position resembles a butterfly.

Here is how the Long Butterfly (RED colored Graph) and Short Butterfly (YELLOW colored graph) look. Butterfly options can be constructed by taking multiple option positions - some short and some long (as we'll see in the following details).
They offer limited profit limited loss potential, so considered safe bets in options trading. Butterfly option positions can be constructed by using either all call options (some long and some short) or by using all put options (some long and some short). Before an option trader decides to use calls or puts, he needs to first decide which butterfly (long or short) he wants to trade on.
Once the option trader decides which butterfly he wants to trade (long or short), he can then select the call butterfly or put butterfly.
Long Put Option Trading StrategyTo begin with, a Long Put Option position is one in which you take a BUY position of a PUT option.
Payoff Function for Long Put OptionFor the time being, ignore the price (\$5) you paid for buying the put option.
Additionally, the risk is capped to the premium paid for the put options, as opposed to unlimited risk when short selling the underlying stock outright. If the underlying stock price does not move below the strike price before the option expiration date, the put option will expire worthless. A put option contract with a strike price of \$40 expiring in a month's time is being priced at \$2. With underlying stock price now at \$30, your put option will now be in-the-money with an intrinsic value of \$1000 and you can sell it for that much.

One very commonly used and frequently traded option strategy is the Butterfly Options Trading Strategy. As indicated above, the long butterfly (RED graph) will be profitable only when the underlying stock or index price doesn’t move much and remains in a narrow region. Please remember that the final net payoff function for short butterfly and long butterfly option will always remain the same, irrespective of whether they are constructed using call options or put options.
So say for example, you buy a Put option on Microsoft with a strike price of \$30 and you pay \$5 for buying the put option.
So theoretically, you have the PINK colored payoff function for Long Put option at the strike price of \$30.
You believe that XYZ stock will fall sharply in the coming weeks and so you paid \$200 to purchase a single \$40 XYZ put option covering 100 shares. Since you had paid \$200 to purchase the put option, your net profit for the entire trade is therefore \$800.
On the other hand, the short butterfly (YELLOW graph) will be profitable to the option trader when the underlying stock or index makes a big move in either direction with a big value. So even though you get \$5 on the expiry day, your profit and loss is zero since you had paid \$5 upfront for taking this put option.

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