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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 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 is options trading. {keywords}.

The advantage on a long put is practically as great as on a long call, because the gain can be multiples of the choice premium paid. Nevertheless, a stock can never go below zero, capping the benefit, whereas the long call has in theory unlimited advantage. Long puts are another easy and popular method 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 alternative, the put expires useless and you’ll lose your investment. {keywords}. A long put is an excellent choice when you anticipate the stock to fall significantly prior to the choice expires ({keywords}). If the stock falls only slightly below the strike rate, the choice will remain in the cash, but may not return the premium paid, handing you a bottom line ({keywords}).

Short put, This method is the flipside of the long put, however here the trader sells a put referred to as “going short” a put and anticipates the stock price to be above the strike rate by expiration – {keywords}. In exchange for selling a put, the trader gets 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 rate 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 contract. Here’s the revenue 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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In 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 brief call or covered call, the maximum return on a short put is what the seller receives upfront ({keywords}).

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