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Options Trading Strategies: A Guide For Beginners

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 price minus the $1 premium paid. Below $19 the put increases in worth $100 for every dollar decline in the stock. best options trading platform. {keywords}.

The benefit on a long put is almost as good as on a long call, since the gain can be multiples of the alternative premium paid. However, a stock can never go below absolutely no, capping the upside, whereas the long call has in theory endless upside. Long puts are another easy and popular method 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 cost at expiration of the choice, the put expires useless and you’ll lose your investment. {keywords}. A long put is a good choice when you expect the stock to fall considerably before the alternative expires ({keywords}). If the stock falls only slightly listed below the strike rate, the choice will remain in the cash, however may not return the premium paid, handing you a bottom line ({keywords}).

Short put, This method is the flipside of the long put, but here the trader sells a put referred to as “going short” a put and expects the stock price to be above the strike rate 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 cost of $20 and expiration in four 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 earn some but not all of the premium – {keywords}. The advantage on the brief 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 in advance ({keywords}).

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