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Here’s the revenue 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 rate minus the $1 premium paid. Below $19 the put increases in value $100 for every dollar decline in the stock. options trading for beginners. {keywords}.

The upside on a long put is nearly as great as on a long call, due to the fact that the gain can be multiples of the choice premium paid. However, a stock can never ever go listed below zero, capping the benefit, whereas the long call has theoretically limitless upside. Long puts are another easy and popular method to wager on the decrease 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 rate at expiration of the option, the put ends worthless and you’ll lose your investment. {keywords}. A long put is a great choice when you expect the stock to fall substantially prior to the option ends ({keywords}). If the stock falls only slightly below the strike cost, the choice will remain in the cash, but may not return the premium paid, handing you a net loss ({keywords}).

Short put, This method is the flipside of the long put, but here the trader offers a put referred to as “going short” a put and expects 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 4 months is trading at $1 ({keywords}). The agreement pays a premium of $100, or one contract * $1 * 100 shares represented per agreement. 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 got.

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

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