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Here’s the profit 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 price minus the $1 premium paid. Listed below $19 the put increases in worth $100 for each dollar decrease in the stock. what are options trading. {keywords}.

The advantage on a long put is almost as excellent as on a long call, because the gain can be multiples of the option premium paid. A stock can never go listed below zero, capping the advantage, whereas the long call has in theory endless benefit. Long puts are another easy and popular way to wager on the decline 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 ends worthless and you’ll lose your investment. {keywords}. A long put is a good choice when you expect the stock to fall considerably prior to the alternative expires ({keywords}). If the stock falls only a little listed below the strike rate, the alternative will be in the cash, however might not return the premium paid, handing you a net loss ({keywords}).

Short put, This strategy is the flipside of the long put, but here the trader offers a put referred to as “going short” a put and expects the stock price to be above the strike cost by expiration – {keywords}. In exchange for offering a put, the trader receives a cash 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 agreement * $1 * 100 shares represented per agreement. Here’s the revenue on the short put at expiration: In this example, the short 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 optimum return on a brief put is what the seller receives upfront ({keywords}).

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