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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 cost minus the $1 premium paid. Listed below $19 the put increases in value $100 for every dollar decline in the stock. best options trading platform. {keywords}.
The advantage on a long put is almost as good as on a long call, because the gain can be multiples of the option premium paid. A stock can never ever go below no, capping the advantage, whereas the long call has in theory limitless upside. Long puts are another easy and popular way to wager on the decline of a stock, and they can be safer than shorting a stock ({keywords}).
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 an excellent choice when you expect the stock to fall substantially before the alternative ends ({keywords}). If the stock falls just slightly listed below the strike rate, the alternative will remain in the cash, but might not return the premium paid, handing you a bottom line ({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 expects the stock rate to be above the strike price by expiration – {keywords}. In exchange for offering a put, the trader receives 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 4 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 short put breaks even at $19, or the strike rate less the premium received.
In between $19 and $20, the put seller would earn some however not all of the premium – {keywords}. The advantage on the short put is never ever 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 in advance ({keywords}).