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Here’s the profit on the long put at expiration: In this example, the put breaks even when the stock closes at choice expiration at $19 per share, or the strike cost minus the $1 premium paid. Below $19 the put increases in value $100 for each dollar decrease in the stock. what is options trading. {keywords}.

The upside on a long put is practically as excellent as on a long call, due to the fact that the gain can be multiples of the option premium paid. A stock can never ever go below zero, capping the advantage, whereas the long call has in theory unrestricted benefit. Long puts are another easy and popular way to bet on the decrease of a stock, and they can be more secure than shorting a stock ({keywords}).

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If the stock closes above the strike price at expiration of the option, the put expires worthless and you’ll lose your financial investment. {keywords}. A long put is an excellent choice when you anticipate the stock to fall substantially prior to the choice ends ({keywords}). If the stock falls only somewhat listed below the strike rate, the option will be in the cash, but may not return the premium paid, handing you a bottom line ({keywords}).

Short put, This technique is the flipside of the long put, however here the trader offers a put described as “going short” a put and expects the stock price to be above the strike rate by expiration – {keywords}. In exchange for selling a put, the trader receives a money premium, which is the most a brief put can make.

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Stock X is trading for $20 per share, and a put with a strike cost of $20 and expiration in four months is trading at $1 ({keywords}). The contract pays a premium of $100, or one contract * $1 * 100 shares represented per agreement. Here’s the profit on the brief put at expiration: In this example, the short put breaks even at $19, or the strike rate less the premium got.

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In between $19 and $20, the put seller would earn some but not all of the premium – {keywords}. The advantage on the brief put is never more than the premium received, $100 here ({keywords}). Like the short call or covered call, the optimum return on a short put is what the seller gets in advance ({keywords}).

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