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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 alternative expiration at $19 per share, or the strike rate minus the $1 premium paid. Below $19 the put increases in value $100 for every single dollar decrease in the stock. what is options trading. {keywords}.

The upside on a long put is nearly as great as on a long call, because the gain can be multiples of the alternative premium paid. However, a stock can never go below absolutely no, topping the upside, whereas the long call has in theory limitless advantage. Long puts are another basic and popular way to wager 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 rate at expiration of the alternative, the put expires worthless and you’ll lose your investment. {keywords}. A long put is a great choice when you anticipate the stock to fall significantly prior to the option ends ({keywords}). If the stock falls just somewhat below the strike rate, the option will remain in the cash, but may not return the premium paid, handing you a net loss ({keywords}).

Short put, This method is the flipside of the long put, but here the trader sells 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 receives 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 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 profit on the brief put at expiration: In this example, the short put breaks even at $19, or the strike price less the premium received.

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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 short call or covered call, the maximum return on a short put is what the seller receives in advance ({keywords}).

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