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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 choice expiration at $19 per share, or the strike rate minus the $1 premium paid. Below $19 the put increases in value $100 for each dollar decline in the stock. options trading. {keywords}.

The upside on a long put is practically as good as on a long call, because the gain can be multiples of the option premium paid. Nevertheless, a stock can never go below no, capping the benefit, whereas the long call has in theory unrestricted benefit. Long puts are another basic and popular way to wager on the decrease of a stock, and they can be safer than shorting a stock ({keywords}).

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If the stock closes above the strike cost at expiration of the choice, the put expires worthless 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 option ends ({keywords}). If the stock falls only somewhat listed below the strike cost, the choice 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, but here the trader sells a put referred to as “going short” a put and expects the stock cost to be above the strike rate by expiration – {keywords}. In exchange for offering a put, the trader receives a cash premium, which is the most a short 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 agreement pays a premium of $100, or one contract * $1 * 100 shares represented per agreement. Here’s the earnings on the brief put at expiration: In this example, the brief put breaks even at $19, or the strike price less the premium received.

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

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