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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 price minus the $1 premium paid. Listed below $19 the put increases in worth $100 for each dollar decrease in the stock. options trading robinhood. {keywords}.

The advantage on a long put is practically as great as on a long call, since the gain can be multiples of the choice premium paid. However, a stock can never go below absolutely no, capping the advantage, whereas the long call has in theory endless upside. Long puts are another simple and popular way to wager 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 choice, the put expires useless and you’ll lose your investment. {keywords}. A long put is a good choice when you expect the stock to fall substantially prior to the option expires ({keywords}). If the stock falls just slightly listed below the strike cost, the alternative will be 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, but here the trader sells a put described as “going short” a put and expects the stock rate 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 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 four months is trading at $1 ({keywords}). The contract pays a premium of $100, or one contract * $1 * 100 shares represented per contract. Here’s the revenue on the brief put at expiration: In this example, the short put breaks even at $19, or the strike rate less the premium received.

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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 brief call or covered call, the maximum return on a brief put is what the seller gets in advance ({keywords}).

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