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

The upside on a long put is nearly as great 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, capping the benefit, whereas the long call has in theory unlimited upside. Long puts are another easy and popular method to wager on the decline of a stock, and they can be more secure than shorting a stock ({keywords}).

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If the stock closes above the strike rate at expiration of the choice, the put expires worthless and you’ll lose your investment. {keywords}. A long put is a good choice when you anticipate the stock to fall significantly prior to the choice ends ({keywords}). If the stock falls just a little below the strike price, the option will be in the money, but may not return the premium paid, handing you a bottom line ({keywords}).

Short put, This technique 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 cost to be above the strike rate by expiration – {keywords}. In exchange for selling a put, the trader receives a cash 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 contract. Here’s the earnings on the short put at expiration: In this example, the brief put breaks even at $19, or the strike price less the premium got.

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

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