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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 option expiration at $19 per share, or the strike rate minus the $1 premium paid. Below $19 the put increases in value $100 for every dollar decline in the stock. what are options trading. {keywords}.

The upside on a long put is almost as good as on a long call, since the gain can be multiples of the alternative premium paid. Nevertheless, a stock can never go listed below no, topping the upside, whereas the long call has in theory unlimited upside. Long puts are another simple and popular method to bet on the decrease 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 option, the put expires useless and you’ll lose your investment. {keywords}. A long put is an excellent option when you expect the stock to fall significantly prior to the alternative expires ({keywords}). If the stock falls only a little below the strike rate, the option will remain in the cash, however may not return the premium paid, handing you a bottom line ({keywords}).

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

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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 agreement * $1 * 100 shares represented per contract. Here’s the profit on the short put at expiration: In this example, the brief put breaks even at $19, or the strike price less the premium got.

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Between $19 and $20, the put seller would earn some but not all of the premium – {keywords}. The advantage on the short 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 receives upfront ({keywords}).

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