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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 alternative expiration at $19 per share, or the strike rate minus the $1 premium paid. Listed below $19 the put increases in worth $100 for each dollar decrease in the stock. what is options trading. {keywords}.

The upside on a long put is almost as good as on a long call, due to the fact that the gain can be multiples of the option premium paid. A stock can never go listed below zero, capping the upside, whereas the long call has theoretically unlimited benefit. Long puts are another easy and popular way to wager on the decrease 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 cost at expiration of the option, the put expires worthless and you’ll lose your investment. {keywords}. A long put is a good option when you expect the stock to fall significantly prior to the option ends ({keywords}). If the stock falls just slightly listed below the strike cost, the alternative will be in the money, 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 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 receives a money premium, which is the most a short put can make.

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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 agreement. Here’s the revenue on the brief 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 earn some but not all of the premium – {keywords}. The upside on the short 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 in advance ({keywords}).

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