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What Is Option Trading: Beginner Tutorial For Dummies Ep 248 …

Here’s the profit on the long put at expiration: In this example, the put breaks even when the stock closes at alternative expiration at $19 per share, or the strike price minus the $1 premium paid. Listed below $19 the put increases in worth $100 for every single dollar decline in the stock. what is options trading. {keywords}.

The benefit on a long put is nearly as great as on a long call, because the gain can be multiples of the alternative premium paid. A stock can never ever go below zero, capping the benefit, whereas the long call has theoretically unrestricted benefit. Long puts are another easy and popular way 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 alternative, the put expires worthless and you’ll lose your financial investment. {keywords}. A long put is a great option when you expect the stock to fall significantly prior to the alternative expires ({keywords}). If the stock falls just a little below the strike rate, the option will remain in the cash, but may not return the premium paid, handing you a bottom line ({keywords}).

Short put, This strategy is the flipside of the long put, however here the trader offers a put referred to as “going short” a put and anticipates the stock rate 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 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 earnings on the brief put at expiration: In this example, the short put breaks even at $19, or the strike rate less the premium received.

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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 more than the premium got, $100 here ({keywords}). Like the short call or covered call, the maximum return on a brief put is what the seller receives in advance ({keywords}).

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