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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 choice expiration at $19 per share, or the strike cost minus the $1 premium paid. Below $19 the put increases in value $100 for every single dollar decrease in the stock. robinhood options trading. {keywords}.

The advantage on a long put is nearly as good as on a long call, since the gain can be multiples of the alternative premium paid. Nevertheless, a stock can never ever go below zero, capping the upside, whereas the long call has theoretically unrestricted advantage. Long puts are another easy and popular way to bet 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 option, the put expires useless and you’ll lose your investment. {keywords}. A long put is a great choice when you expect the stock to fall significantly prior to the choice expires ({keywords}). If the stock falls only a little listed below the strike rate, the option will be in the cash, however may not return the premium paid, handing you a net loss ({keywords}).

Short put, This strategy 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 money 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 4 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 revenue 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 benefit on the short put is never ever 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 gets in advance ({keywords}).

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