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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 cost minus the $1 premium paid. Below $19 the put increases in worth $100 for every dollar decline in the stock. what are options trading. {keywords}.

The benefit on a long put is almost as good as on a long call, because the gain can be multiples of the alternative premium paid. Nevertheless, a stock can never go below zero, topping the benefit, whereas the long call has theoretically unrestricted upside. Long puts are another basic and popular method to bet on the decrease of a stock, and they can be safer than shorting a stock ({keywords}).

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If the stock closes above the strike rate at expiration of the option, the put expires worthless and you’ll lose your investment. {keywords}. A long put is a good option when you expect the stock to fall significantly prior to the choice ends ({keywords}). If the stock falls only a little below the strike cost, the option will remain in the cash, 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 sells a put described as “going short” a put and anticipates the stock cost to be above the strike price by expiration – {keywords}. In exchange for offering a put, the trader receives a cash premium, which is the most a brief put can make.

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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 contract pays a premium of $100, or one contract * $1 * 100 shares represented per agreement. 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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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 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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