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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 rate minus the $1 premium paid. Below $19 the put increases in value $100 for every single dollar decrease in the stock. what are options trading. {keywords}.

The advantage 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 alternative premium paid. A stock can never ever go below absolutely no, topping the benefit, whereas the long call has in theory endless benefit. Long puts are another basic and popular method to bet on the decline of a stock, and they can be safer 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 useless and you’ll lose your investment. {keywords}. A long put is a good option when you expect the stock to fall considerably before the choice ends ({keywords}). If the stock falls only somewhat listed below the strike cost, the option will be in the cash, 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 offers a put referred to as “going short” a put and expects the stock cost to be above the strike cost by expiration – {keywords}. In exchange for offering a put, the trader gets a cash 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 price of $20 and expiration in 4 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 revenue on the brief 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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In between $19 and $20, the put seller would earn some but not all of the premium – {keywords}. The upside on the brief put is never ever more than the premium got, $100 here ({keywords}). Like the short call or covered call, the optimum return on a short put is what the seller receives in advance ({keywords}).

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