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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 each dollar decline in the stock. best options trading platform. {keywords}.

The upside on a long put is practically 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 below zero, topping the upside, whereas the long call has in theory endless upside. Long puts are another simple and popular method to wager on the decrease of a stock, and they can be safer than shorting a stock ({keywords}).

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If the stock closes above the strike cost at expiration of the choice, the put expires useless and you’ll lose your investment. {keywords}. A long put is a good option when you expect the stock to fall considerably before the option expires ({keywords}). If the stock falls only a little below the strike cost, the choice will be in the cash, however may not return the premium paid, handing you a bottom line ({keywords}).

Short put, This strategy 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 cost by expiration – {keywords}. In exchange for selling 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 rate of $20 and expiration in four months is trading at $1 ({keywords}). The agreement pays a premium of $100, or one contract * $1 * 100 shares represented per contract. Here’s the earnings on the brief put at expiration: In this example, the short put breaks even at $19, or the strike price less the premium received.

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In between $19 and $20, the put seller would make some but not all of the premium – {keywords}. The upside on the short put is never more than the premium got, $100 here ({keywords}). Like the short call or covered call, the optimum return on a brief put is what the seller gets upfront ({keywords}).

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