Gaining Exposure 	 	•	 201
consider whether the prospective returns justify entering a long call posi-
tion that will likely have to be rolled multiple times before the stock hits 
your fair value estimate.
By the way, it goes without saying that to the extent that an option 
you want to roll has a significant amount of time value on it, it is better 
to roll before time decay starts to become extreme. This usually occurs at 
around three months before expiration. It turns out that option liquidity 
increases in the last three months before expiration, and rolling is made 
easier with the greater liquidity.
Having discussed gaining bullish exposure with this section about 
long calls, let’s now turn to gaining bearish exposure in the following sec-
tion on long puts.
Long Put
GREEN
Downside: Undervalued
Upside: Fairly priced
Execute: Buy a put option
Risk: Amount of premium paid
Reward: Amount equal to strike price—premium
The Gist
An investor uses this strategy when he or she believes that it is very likely 
that the value of a company is much lower than the present market price. 
The investor must pay a premium to initiate the position, and the propor-
tion of the premium that represents time value should be recognized as a