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Here’s the earnings on the long put at expiration: In this example, the put breaks even when the stock closes at alternative expiration at $19 per share, or the strike price minus the $1 premium paid. Below $19 the put increases in worth $100 for each dollar decline in the stock. options trading for beginners. {keywords}.

The benefit on a long put is almost as great as on a long call, because the gain can be multiples of the alternative premium paid. A stock can never go listed below zero, topping the benefit, whereas the long call has in theory unrestricted upside. Long puts are another simple and popular way 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 option, the put expires useless and you’ll lose your investment. {keywords}. A long put is a good choice when you expect the stock to fall considerably before the option ends ({keywords}). If the stock falls only a little listed below the strike rate, the alternative will be in the money, but may not return the premium paid, handing you a bottom line ({keywords}).

Short put, This technique is the flipside of the long put, but here the trader sells a put described 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 cost of $20 and expiration in 4 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 short put at expiration: In this example, the brief put breaks even at $19, or the strike rate less the premium got.

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Between $19 and $20, the put seller would earn some however not all of the premium – {keywords}. The benefit on the short put is never more than the premium received, $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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