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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 worth $100 for every dollar decrease in the stock. what is options trading. {keywords}.

The advantage on a long put is nearly as good as on a long call, since the gain can be multiples of the option premium paid. However, a stock can never ever go below zero, topping the benefit, whereas the long call has theoretically unrestricted upside. Long puts are another easy and popular way to bet 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 price at expiration of the choice, the put ends worthless and you’ll lose your investment. {keywords}. A long put is a great choice when you anticipate the stock to fall significantly before the alternative ends ({keywords}). If the stock falls only somewhat listed below the strike cost, the choice will remain in the money, but might not return the premium paid, handing you a bottom line ({keywords}).

Short put, This technique is the flipside of the long put, but here the trader sells a put described as “going short” a put and anticipates the stock price to be above the strike cost by expiration – {keywords}. In exchange for selling a put, the trader gets 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 price of $20 and expiration in four months is trading at $1 ({keywords}). The agreement pays a premium of $100, or one agreement * $1 * 100 shares represented per contract. Here’s the profit on the short put at expiration: In this example, the short put breaks even at $19, or the strike cost less the premium got.

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

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