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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 cost minus the $1 premium paid. Below $19 the put increases in worth $100 for every single dollar decrease in the stock. what is options trading. {keywords}.

The upside on a long put is nearly as great as on a long call, because the gain can be multiples of the choice premium paid. A stock can never ever go below no, 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 price at expiration of the choice, the put ends worthless and you’ll lose your investment. {keywords}. A long put is an excellent option when you expect the stock to fall substantially before the option expires ({keywords}). If the stock falls only somewhat listed below the strike rate, the choice will be in the cash, but may not return the premium paid, handing you a net loss ({keywords}).

Short put, This method is the flipside of the long put, but here the trader offers a put referred to as “going short” a put and expects the stock cost to be above the strike rate by expiration – {keywords}. In exchange for offering a put, the trader receives a cash premium, which is the most a short put can earn.

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Stock X is trading for $20 per share, and a put with a strike rate 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 contract. Here’s the earnings on the short put at expiration: In this example, the brief put breaks even at $19, or the strike price 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 upside on the brief put is never more than the premium got, $100 here ({keywords}). Like the brief call or covered call, the maximum return on a brief put is what the seller gets upfront ({keywords}).

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