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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 option expiration at $19 per share, or the strike cost minus the $1 premium paid. Listed below $19 the put increases in value $100 for each dollar decline in the stock. what is options trading. {keywords}.

The upside on a long put is nearly as good as on a long call, because the gain can be multiples of the alternative premium paid. Nevertheless, a stock can never ever go below absolutely no, capping the advantage, whereas the long call has in theory unrestricted advantage. Long puts are another basic and popular way to bet on the decrease of a stock, and they can be much 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 financial investment. {keywords}. A long put is a great choice when you expect the stock to fall significantly before the option expires ({keywords}). If the stock falls just slightly listed below the strike rate, the alternative 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, but here the trader sells a put described as “going short” a put and expects the stock price to be above the strike price by expiration – {keywords}. In exchange for offering a put, the trader gets a money premium, which is the most a short 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 4 months is trading at $1 ({keywords}). The agreement pays a premium of $100, or one contract * $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 cost less the premium received.

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In between $19 and $20, the put seller would make 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 brief call or covered call, the maximum return on a short put is what the seller gets upfront ({keywords}).

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