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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 price minus the $1 premium paid. Below $19 the put increases in worth $100 for each dollar decrease in the stock. trading options. {keywords}.

The upside on a long put is almost as great as on a long call, due to the fact that the gain can be multiples of the alternative premium paid. However, a stock can never go below zero, topping the advantage, whereas the long call has in theory limitless advantage. Long puts are another simple and popular way to bet on the decrease 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 substantially before the choice ends ({keywords}). If the stock falls just a little below the strike price, the alternative will remain in the money, 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 sells a put referred to as “going short” a put and anticipates the stock rate to be above the strike cost 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 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 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 but not all of the premium – {keywords}. The advantage on the brief put is never more than the premium received, $100 here ({keywords}). Like the brief call or covered call, the maximum return on a short put is what the seller receives upfront ({keywords}).

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