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

The advantage on a long put is practically as good as on a long call, due to the fact that the gain can be multiples of the choice premium paid. However, a stock can never go below zero, capping the advantage, whereas the long call has theoretically limitless upside. Long puts are another simple and popular way to wager on the decline 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 choice, the put expires useless and you’ll lose your investment. {keywords}. A long put is a good option when you anticipate the stock to fall significantly prior to the alternative expires ({keywords}). If the stock falls only slightly listed below the strike price, the alternative will be in the money, however might 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 offers 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 offering a put, the trader gets a money 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 4 months is trading at $1 ({keywords}). The contract pays a premium of $100, or one contract * $1 * 100 shares represented per agreement. Here’s the profit on the brief put at expiration: In this example, the short put breaks even at $19, or the strike cost less the premium received.

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In between $19 and $20, the put seller would earn some but not all of the premium – {keywords}. The benefit on the short put is never more than the premium got, $100 here ({keywords}). Like the brief call or covered call, the maximum return on a short put is what the seller receives in advance ({keywords}).

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