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

The advantage on a long put is almost as great as on a long call, since the gain can be multiples of the option premium paid. However, a stock can never ever go below zero, topping the advantage, whereas the long call has theoretically unlimited upside. Long puts are another easy 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 an excellent choice when you expect the stock to fall considerably prior to the alternative ends ({keywords}). If the stock falls just a little 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, however here the trader offers a put described as “going short” a put and expects the stock price 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 brief put can earn.

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Stock X is trading for $20 per share, and a put with a strike price of $20 and expiration in four 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 brief put at expiration: In this example, the brief put breaks even at $19, or the strike price less the premium received.

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Between $19 and $20, the put seller would make some however not all of the premium – {keywords}. The upside on the short put is never more than the premium got, $100 here ({keywords}). Like the brief call or covered call, the maximum return on a brief put is what the seller gets upfront ({keywords}).

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