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Here’s the profit 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. what is options trading. {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. Nevertheless, a stock can never go listed below zero, capping the upside, whereas the long call has theoretically unlimited benefit. Long puts are another basic and popular way 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 rate at expiration of the alternative, the put ends worthless and you’ll lose your investment. {keywords}. A long put is an excellent option when you expect the stock to fall substantially prior to the alternative ends ({keywords}). If the stock falls only somewhat listed below the strike cost, the option will remain in the cash, but might 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 offers a put referred to as “going short” a put and expects the stock price to be above the strike price by expiration – {keywords}. In exchange for offering 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 rate of $20 and expiration in four months is trading at $1 ({keywords}). The contract pays a premium of $100, or one contract * $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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In between $19 and $20, the put seller would earn some however 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 maximum return on a short put is what the seller gets upfront ({keywords}).

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