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

The benefit on a long put is practically as good as on a long call, because the gain can be multiples of the option premium paid. However, a stock can never ever go listed below absolutely no, topping the benefit, whereas the long call has theoretically endless upside. Long puts are another basic and popular way to bet on the decline 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 option, the put expires worthless and you’ll lose your financial investment. {keywords}. A long put is a good option when you expect the stock to fall significantly before the option ends ({keywords}). If the stock falls just a little below the strike rate, the choice will remain in the cash, but may not return the premium paid, handing you a net loss ({keywords}).

Short put, This strategy is the flipside of the long put, however here the trader offers 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 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 4 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 profit on the brief 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 make 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 short call or covered call, the maximum return on a brief put is what the seller gets upfront ({keywords}).

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