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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 alternative 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. best options trading platform. {keywords}.

The upside on a long put is practically as great 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 below zero, topping the upside, whereas the long call has theoretically endless advantage. Long puts are another basic and popular method to wager 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 expires useless and you’ll lose your investment. {keywords}. A long put is a great choice when you expect the stock to fall substantially before the alternative expires ({keywords}). If the stock falls just a little below the strike cost, the alternative will remain in the cash, however might not return the premium paid, handing you a net loss ({keywords}).

Short put, This technique is the flipside of the long put, but here the trader sells a put referred to as “going short” a put and anticipates the stock price 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 make.

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Stock X is trading for $20 per share, and a put with a strike price 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 profit on the short put at expiration: In this example, the short put breaks even at $19, or the strike cost 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 brief put is never 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 gets in advance ({keywords}).

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