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Options Trading Strategies For Beginners – Investment U

Here’s the earnings on the long put at expiration: In this example, the put breaks even when the stock closes at choice 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. robinhood options trading. {keywords}.

The advantage on a long put is nearly as excellent as on a long call, since the gain can be multiples of the choice premium paid. However, a stock can never go listed below no, topping the advantage, whereas the long call has theoretically endless advantage. Long puts are another basic and popular way 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 rate at expiration of the option, the put ends worthless and you’ll lose your investment. {keywords}. A long put is an excellent choice when you expect the stock to fall significantly before the option expires ({keywords}). If the stock falls only a little below the strike cost, the alternative will remain in the cash, but might 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 referred to as “going short” a put and anticipates the stock cost to be above the strike cost by expiration – {keywords}. In exchange for selling a put, the trader gets a money 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 rate 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 profit on the short put at expiration: In this example, the brief put breaks even at $19, or the strike cost less the premium got.

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

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