I wrote a series of articles covering strategies for buying call options. Rather than repeat those strategies when they’re very similar when it comes to buying puts, I thought I’d concentrate on comparing and contrasting buying put options vs. buying call options instead.

First off, buying a put option is the precise opposite of buying a call option. A call option gives you the option to buy the underlying stock at a specific strike price before the option expires while a put option gives you the option to sell the underlying stock at a specific strike price before the option expires. You buy a call when you expect the price of the underlying stock to rise and you buy a put when you expect share price to fall.

When it comes to gaining leverage and limiting risk, you buy put options for exactly the same reasons as you buy call options. Put options let you limit your risk to only the amount you pay in premium vs. the unlimited risk associated with going short in the underlying stock instead. Put options also let you leverage a much smaller investment in premium to control a much larger position in stock. Like buying a call option, your return on investment when compared to the capital you had to put at risk to generate that return is much more weighted in your favor than if you were short the actual stock in question.

Just like call options can be used as insurance to limit your downside when paired to short positions, put options can be used to limit your downside when you’re long a stock. Buying a put option at a market value below what you paid when you went long protects you if the share price falls farther than you expect. This is called a “married put” and, assuming that you buy enough lots to cover the number of shares you own, put options will guarantee a maximum loss when you’re long in the underlying stock.

These positions where you’re long a stock and have bought put options as insurance or you’re short a stock but have bought call options are called “synthetic” positions. Being long with put options is a synthetic call and being short with call options is a synthetic put.

In either case, buying options offer more than simple opportunities for speculation. You can certainly buy call or put options purely to profit on significant movements in the underlying stock but they also have attributes that give you substantial flexibility in maximizing profits, limiting losses, and managing your trading risk. They really deserve a much more prominent place in your trading plan beyond simply being considered as “bets” on the future movement of a stock’s price.