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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 cost minus the $1 premium paid. Listed below $19 the put increases in worth $100 for every dollar decline in the stock. options trading. {keywords}.

The advantage on a long put is practically as great as on a long call, because the gain can be multiples of the choice premium paid. A stock can never go below zero, capping the upside, whereas the long call has theoretically endless benefit. Long puts are another easy and popular way to wager on the decrease 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 option, the put expires worthless and you’ll lose your financial investment. {keywords}. A long put is a good choice when you expect the stock to fall considerably before the alternative expires ({keywords}). If the stock falls only slightly listed below the strike cost, the option will remain in the cash, but might not return the premium paid, handing you a net loss ({keywords}).

Short put, This method is the flipside of the long put, however here the trader offers a put described as “going short” a put and expects 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 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 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 revenue on the short put at expiration: In this example, the brief put breaks even at $19, or the strike price less the premium got.

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In between $19 and $20, the put seller would earn some but not all of the premium – {keywords}. The advantage on the brief put is never ever more than the premium got, $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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