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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 price minus the $1 premium paid. Listed below $19 the put increases in value $100 for every dollar decrease in the stock. what is options trading. {keywords}.

The upside on a long put is nearly as good as on a long call, since the gain can be multiples of the alternative premium paid. However, a stock can never ever go below zero, capping the benefit, whereas the long call has in theory limitless upside. Long puts are another simple and popular way to wager on the decline of a stock, and they can be much safer than shorting a stock ({keywords}).

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If the stock closes above the strike rate at expiration of the alternative, the put ends worthless and you’ll lose your financial investment. {keywords}. A long put is a good option when you expect the stock to fall significantly prior to the choice expires ({keywords}). If the stock falls only slightly listed below the strike cost, the alternative will remain in the money, but may not return the premium paid, handing you a net loss ({keywords}).

Short put, This method is the flipside of the long put, however here the trader sells a put referred to as “going short” a put and expects the stock rate to be above the strike cost by expiration – {keywords}. In exchange for selling a put, the trader receives a money premium, which is the most a short 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 4 months is trading at $1 ({keywords}). The contract pays a premium of $100, or one contract * $1 * 100 shares represented per contract. Here’s the earnings on the brief put at expiration: In this example, the short put breaks even at $19, or the strike rate less the premium received.

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Between $19 and $20, the put seller would make some but not all of the premium – {keywords}. The benefit on the brief put is never more than the premium got, $100 here ({keywords}). Like the short call or covered call, the maximum return on a short put is what the seller gets in advance ({keywords}).

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