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Here’s the revenue 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 value $100 for every single dollar decline in the stock. what is options trading. {keywords}.

The upside on a long put is practically as great as on a long call, due to the fact that the gain can be multiples of the choice premium paid. A stock can never go below absolutely no, topping the advantage, whereas the long call has in theory unrestricted benefit. Long puts are another basic and popular method to bet 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 price at expiration of the option, the put expires useless and you’ll lose your investment. {keywords}. A long put is a great option when you anticipate the stock to fall significantly before the option expires ({keywords}). If the stock falls just slightly below the strike rate, the option will remain in the cash, however might not return the premium paid, handing you a bottom line ({keywords}).

Short put, This technique is the flipside of the long put, but here the trader offers a put referred to as “going short” a put and expects the stock rate to be above the strike price by expiration – {keywords}. In exchange for selling a put, the trader gets 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 price 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 contract. Here’s the earnings on the brief put at expiration: In this example, the short 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 upside on the short put is never more than the premium received, $100 here ({keywords}). Like the short call or covered call, the maximum return on a brief put is what the seller gets upfront ({keywords}).

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