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The Basics Of Trading Options Contracts – Dummies

Here’s the revenue 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. Listed below $19 the put increases in value $100 for every dollar decrease in the stock. options trading robinhood. {keywords}.

The benefit on a long put is nearly as good as on a long call, because the gain can be multiples of the option premium paid. A stock can never go below zero, topping the advantage, whereas the long call has theoretically limitless advantage. Long puts are another basic and popular method to bet on the decline of a stock, and they can be safer than shorting a stock ({keywords}).

Options Trading Strategies For Beginners - Investment UThe Basics Of Trading Options Contracts – Dummies

If the stock closes above the strike cost at expiration of the option, the put ends worthless and you’ll lose your financial investment. {keywords}. A long put is a good choice when you expect the stock to fall considerably before the option expires ({keywords}). If the stock falls just somewhat listed below the strike rate, the alternative will remain in the cash, 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 sells a put referred to as “going short” a put and expects the stock cost to be above the strike price by expiration – {keywords}. In exchange for offering a put, the trader gets a cash 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 cost 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 revenue on the brief put at expiration: In this example, the short 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 make 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 brief call or covered call, the maximum return on a brief put is what the seller gets upfront ({keywords}).

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