Active Vs. Passive Investing

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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 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. options trading. {keywords}.

The upside on a long put is almost as excellent as on a long call, because the gain can be multiples of the alternative premium paid. However, a stock can never go below zero, capping the benefit, whereas the long call has in theory unlimited benefit. Long puts are another simple 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 price at expiration of the option, the put expires worthless and you’ll lose your investment. {keywords}. A long put is a great option when you expect the stock to fall substantially before the alternative expires ({keywords}). If the stock falls just a little below the strike rate, the choice will be in the cash, but might not return the premium paid, handing you a bottom line ({keywords}).

Short put, This technique 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 rate 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 cost of $20 and expiration in 4 months is trading at $1 ({keywords}). The agreement pays a premium of $100, or one agreement * $1 * 100 shares represented per contract. Here’s the profit on the short put at expiration: In this example, the brief put breaks even at $19, or the strike price less the premium got.

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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 ever more than the premium got, $100 here ({keywords}). Like the short call or covered call, the maximum return on a brief put is what the seller receives upfront ({keywords}).

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