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

The benefit 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 option premium paid. A stock can never go below zero, topping the advantage, whereas the long call has theoretically unlimited advantage. Long puts are another simple and popular way to wager on the decrease 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 alternative, the put ends worthless and you’ll lose your investment. {keywords}. A long put is a great option when you expect the stock to fall substantially before the choice ends ({keywords}). If the stock falls just slightly listed below the strike cost, the alternative will be in the cash, however may not return the premium paid, handing you a net loss ({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 anticipates the stock cost to be above the strike cost 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 contract * $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 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 advantage on the short put is never more than the premium received, $100 here ({keywords}). Like the brief call or covered call, the maximum return on a brief put is what the seller gets upfront ({keywords}).

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