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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 option expiration at $19 per share, or the strike price minus the $1 premium paid. Below $19 the put increases in value $100 for each dollar decrease in the stock. what is options trading. {keywords}.

The upside on a long put is almost as great as on a long call, due to the fact that the gain can be multiples of the choice premium paid. Nevertheless, a stock can never ever go below no, topping the benefit, whereas the long call has theoretically unrestricted advantage. Long puts are another easy and popular way to wager on the decrease 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 price at expiration of the choice, the put ends useless and you’ll lose your investment. {keywords}. A long put is an excellent choice when you expect the stock to fall significantly before the alternative expires ({keywords}). If the stock falls only slightly below the strike rate, the alternative will be in the cash, but 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 sells a put described as “going short” a put and anticipates the stock cost to be above the strike rate by expiration – {keywords}. In exchange for selling a put, the trader gets a cash 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 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 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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In between $19 and $20, the put seller would make some however not all of the premium – {keywords}. The upside on the short 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 gets upfront ({keywords}).

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