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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. Listed below $19 the put increases in value $100 for every dollar decrease in the stock. what is options trading. {keywords}.

The advantage on a long put is practically as great as on a long call, due to the fact that the gain can be multiples of the option premium paid. A stock can never go listed below zero, capping the upside, whereas the long call has theoretically unlimited advantage. Long puts are another easy and popular way 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 price at expiration of the option, the put expires worthless and you’ll lose your investment. {keywords}. A long put is a good choice when you anticipate the stock to fall considerably prior to the choice ends ({keywords}). If the stock falls just somewhat below the strike price, the option will be in the cash, however may not return the premium paid, handing you a net loss ({keywords}).

Short put, This strategy is the flipside of the long put, but here the trader sells a put referred to as “going short” a put and anticipates the stock cost to be above the strike cost by expiration – {keywords}. In exchange for selling a put, the trader receives a money 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 agreement pays a premium of $100, or one contract * $1 * 100 shares represented per contract. Here’s the earnings on the short 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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Between $19 and $20, the put seller would make 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 optimum return on a short put is what the seller gets upfront ({keywords}).

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