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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 alternative 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 single dollar decrease in the stock. trading options. {keywords}.

The advantage on a long put is almost as great as on a long call, because the gain can be multiples of the choice premium paid. A stock can never go below absolutely no, capping the benefit, whereas the long call has theoretically unrestricted advantage. Long puts are another easy and popular method to wager 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 ends useless and you’ll lose your investment. {keywords}. A long put is a great option when you expect the stock to fall substantially prior to the choice expires ({keywords}). If the stock falls just a little listed below the strike price, the alternative will remain in the money, however might not return the premium paid, handing you a net loss ({keywords}).

Short put, This method is the flipside of the long put, however here the trader offers a put described as “going short” a put and anticipates the stock rate to be above the strike cost by expiration – {keywords}. In exchange for offering 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 price 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 contract. Here’s the profit 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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Between $19 and $20, the put seller would earn some but not all of the premium – {keywords}. The advantage on the brief put is never more than the premium got, $100 here ({keywords}). Like the short call or covered call, the optimum return on a brief put is what the seller gets in advance ({keywords}).

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