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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 option expiration at $19 per share, or the strike rate minus the $1 premium paid. Below $19 the put increases in worth $100 for each dollar decrease in the stock. robinhood options trading. {keywords}.

The upside on a long put is almost 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 go below zero, topping the advantage, whereas the long call has theoretically endless benefit. Long puts are another simple and popular method to bet 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 cost at expiration of the alternative, the put ends worthless and you’ll lose your investment. {keywords}. A long put is a good option when you expect the stock to fall considerably before the choice expires ({keywords}). If the stock falls only a little listed below the strike cost, the alternative will be in the cash, however might not return the premium paid, handing you a net loss ({keywords}).

Short put, This strategy is the flipside of the long put, however here the trader offers a put described as “going short” a put and expects the stock rate 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 brief put can make.

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Stock X is trading for $20 per share, and a put with a strike rate of $20 and expiration in 4 months is trading at $1 ({keywords}). The agreement pays a premium of $100, or one agreement * $1 * 100 shares represented per agreement. Here’s the revenue on the brief put at expiration: In this example, the brief 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 advantage on the brief put is never more than the premium received, $100 here ({keywords}). Like the short call or covered call, the optimum return on a short put is what the seller receives upfront ({keywords}).

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