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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 rate minus the $1 premium paid. 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 nearly 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 listed below zero, capping the benefit, whereas the long call has theoretically endless advantage. Long puts are another easy and popular way to bet 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 cost at expiration of the alternative, the put expires worthless and you’ll lose your investment. {keywords}. A long put is a good option when you anticipate the stock to fall significantly before the choice ends ({keywords}). If the stock falls only somewhat below the strike cost, the choice will be in the cash, but may not return the premium paid, handing you a net loss ({keywords}).

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

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

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