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Here’s the earnings on the long put at expiration: In this example, the put breaks even when the stock closes at choice expiration at $19 per share, or the strike cost minus the $1 premium paid. Listed below $19 the put increases in worth $100 for each dollar decrease in the stock. options trading robinhood. {keywords}.

The benefit on a long put is nearly as good as on a long call, because the gain can be multiples of the option premium paid. A stock can never ever go listed below zero, capping the upside, whereas the long call has in theory unrestricted benefit. Long puts are another easy and popular method to wager on the decline of a stock, and they can be much safer than shorting a stock ({keywords}).

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If the stock closes above the strike price at expiration of the alternative, the put expires 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 expires ({keywords}). If the stock falls just a little listed below the strike price, the choice will be in the cash, but might not return the premium paid, handing you a net loss ({keywords}).

Short put, This technique 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 cost by expiration – {keywords}. In exchange for offering a put, the trader gets a cash premium, which is the most a brief 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 four 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 earnings on the short put at expiration: In this example, the short put breaks even at $19, or the strike cost less the premium received.

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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 optimum return on a short put is what the seller receives in advance ({keywords}).

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