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Here’s the revenue on the long put at expiration: In this example, the put breaks even when the stock closes at option 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 single dollar decline in the stock. options trading robinhood. {keywords}.

The advantage on a long put is practically as great as on a long call, since the gain can be multiples of the choice premium paid. A stock can never ever go below no, capping the upside, whereas the long call has in theory unrestricted advantage. Long puts are another basic and popular method to bet on the decline of a stock, and they can be safer than shorting a stock ({keywords}).

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If the stock closes above the strike rate at expiration of the choice, the put ends worthless and you’ll lose your investment. {keywords}. A long put is an excellent choice when you expect the stock to fall significantly prior to the choice ends ({keywords}). If the stock falls just somewhat below the strike price, the alternative will remain in the cash, however might not return the premium paid, handing you a net loss ({keywords}).

Short put, This strategy is the flipside of the long put, however here the trader offers a put referred to as “going short” a put and anticipates the stock rate to be above the strike cost by expiration – {keywords}. In exchange for offering 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 agreement pays a premium of $100, or one agreement * $1 * 100 shares represented per agreement. Here’s the revenue 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 make some but not all of the premium – {keywords}. The upside on the short put is never more than the premium got, $100 here ({keywords}). Like the short call or covered call, the optimum return on a brief put is what the seller receives in advance ({keywords}).

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