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Here’s the earnings 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 cost minus the $1 premium paid. Below $19 the put increases in worth $100 for every dollar decrease in the stock. options trading robinhood. {keywords}.

The advantage on a long put is almost as excellent as on a long call, because the gain can be multiples of the alternative premium paid. A stock can never go listed below zero, capping the advantage, whereas the long call has theoretically endless upside. Long puts are another easy and popular method 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 cost at expiration of the choice, 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 choice expires ({keywords}). If the stock falls just somewhat listed below the strike rate, the choice will remain in the cash, but may not return the premium paid, handing you a bottom line ({keywords}).

Short put, This method is the flipside of the long put, however here the trader sells a put described 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 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 earnings on the brief put at expiration: In this example, the brief put breaks even at $19, or the strike rate less the premium received.

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

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