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Options Trading Strategies For Beginners – Investment U

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 price minus the $1 premium paid. Listed below $19 the put increases in value $100 for each dollar decline in the stock. best options trading platform. {keywords}.

The upside on a long put is almost as great as on a long call, because the gain can be multiples of the choice premium paid. However, a stock can never ever go below no, topping the upside, whereas the long call has theoretically unrestricted advantage. Long puts are another basic and popular method to bet 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 rate at expiration of the choice, the put expires worthless and you’ll lose your investment. {keywords}. A long put is a good option when you anticipate the stock to fall substantially before the option ends ({keywords}). If the stock falls only a little below the strike rate, the option will be 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, however here the trader sells a put referred to as “going short” a put and anticipates the stock cost to be above the strike rate by expiration – {keywords}. In exchange for selling a put, the trader receives 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 contract pays a premium of $100, or one agreement * $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 received.

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Between $19 and $20, the put seller would make some however not all of the premium – {keywords}. The advantage on the short put is never more than the premium received, $100 here ({keywords}). Like the short call or covered call, the maximum return on a short put is what the seller receives in advance ({keywords}).

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