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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 rate minus the $1 premium paid. Below $19 the put increases in worth $100 for every single dollar decline in the stock. what is options trading. {keywords}.

The benefit on a long put is practically as good as on a long call, because the gain can be multiples of the choice premium paid. A stock can never go below no, capping the upside, whereas the long call has in theory unlimited upside. Long puts are another simple and popular way to wager 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 cost at expiration of the choice, the put ends useless and you’ll lose your financial investment. {keywords}. A long put is a great choice when you expect the stock to fall substantially before the alternative ends ({keywords}). If the stock falls only somewhat below the strike price, the choice will be in the cash, but may not return the premium paid, handing you a bottom line ({keywords}).

Short put, This strategy is the flipside of the long put, but here the trader sells a put described as “going short” a put and expects the stock price to be above the strike price 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 cost of $20 and expiration in four 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 short put at expiration: In this example, the brief put breaks even at $19, or the strike cost less the premium got.

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In between $19 and $20, the put seller would earn some however not all of the premium – {keywords}. The upside 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 upfront ({keywords}).

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