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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 option expiration at $19 per share, or the strike cost minus the $1 premium paid. Below $19 the put increases in worth $100 for every single dollar decline in the stock. trading options. {keywords}.

The advantage on a long put is almost as great as on a long call, since the gain can be multiples of the choice premium paid. A stock can never ever go below zero, capping the benefit, whereas the long call has in theory unrestricted upside. Long puts are another basic and popular method 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 useless and you’ll lose your investment. {keywords}. A long put is a great option when you expect the stock to fall significantly prior to the choice ends ({keywords}). If the stock falls only a little listed below the strike price, the choice will remain in the cash, but may not return the premium paid, handing you a net loss ({keywords}).

Short put, This method is the flipside of the long put, however here the trader sells a put described 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 receives a money premium, which is the most a brief put can earn.

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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 contract pays a premium of $100, or one agreement * $1 * 100 shares represented per agreement. Here’s the revenue 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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Between $19 and $20, the put seller would earn some but not all of the premium – {keywords}. The advantage on the short put is never 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 gets upfront ({keywords}).

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