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

The advantage on a long put is almost as great as on a long call, because the gain can be multiples of the option premium paid. Nevertheless, a stock can never go below zero, topping the benefit, whereas the long call has theoretically unrestricted upside. Long puts are another easy and popular method to bet on the decline of a stock, and they can be more secure than shorting a stock ({keywords}).

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If the stock closes above the strike price at expiration of the option, the put ends useless and you’ll lose your financial investment. {keywords}. A long put is a good option when you anticipate the stock to fall considerably before the option expires ({keywords}). If the stock falls only somewhat below the strike price, the alternative will be in the money, but may not return the premium paid, handing you a net loss ({keywords}).

Short put, This technique is the flipside of the long put, however here the trader offers a put referred to as “going short” a put and expects the stock price 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 brief 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 contract pays a premium of $100, or one contract * $1 * 100 shares represented per contract. Here’s the profit on the short 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 earn some but not all of the premium – {keywords}. The upside on the brief put is never ever 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 receives upfront ({keywords}).

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