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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 alternative expiration at $19 per share, or the strike price minus the $1 premium paid. Below $19 the put increases in value $100 for every single dollar decrease in the stock. trading options. {keywords}.

The benefit on a long put is nearly as great as on a long call, since the gain can be multiples of the alternative premium paid. However, a stock can never go below zero, capping the upside, whereas the long call has in theory unlimited benefit. Long puts are another basic and popular way to bet on the decrease 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 choice, the put expires worthless and you’ll lose your financial investment. {keywords}. A long put is an excellent choice when you expect the stock to fall significantly prior to the alternative ends ({keywords}). If the stock falls only a little listed below the strike rate, the choice will remain in the money, but 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 offers a put described as “going short” a put and expects the stock cost to be above the strike cost by expiration – {keywords}. In exchange for selling a put, the trader gets 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 rate of $20 and expiration in four 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 earnings 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 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 short call or covered call, the maximum return on a brief put is what the seller receives in advance ({keywords}).

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