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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 rate minus the $1 premium paid. Below $19 the put increases in value $100 for every single dollar decline in the stock. robinhood options trading. {keywords}.

The advantage 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 listed below zero, capping the advantage, whereas the long call has in theory unlimited upside. Long puts are another simple and popular way to wager 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 rate at expiration of the alternative, the put ends worthless and you’ll lose your financial investment. {keywords}. A long put is an excellent choice when you expect the stock to fall substantially before the option ends ({keywords}). If the stock falls only a little below the strike price, the option will remain in the cash, but might not return the premium paid, handing you a net loss ({keywords}).

Short put, This method is the flipside of the long put, however here the trader offers a put described as “going short” a put and anticipates the stock cost 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 short 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 agreement 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 cost less the premium got.

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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 optimum return on a brief put is what the seller receives in advance ({keywords}).

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