Open Put Example | Buy To

Two weeks later, Company XYZ misses earnings and the stock price plunges to .

Unlike shorting a stock, your maximum loss is strictly limited to the premium paid. Key Terms to Remember Premium: The "entry fee" you pay to the seller.

If you hold until expiration, the option expires worthless, and you lose your $200 premium. 3. The "Wrong" Call (Stock Rises) The stock rallies to $110 . buy to open put example

To profit from a downward move without actually shorting the stock (which carries infinite risk).

If you already own 100 shares of XYZ, buying this put acts as an insurance policy. No matter how low the stock falls, you are guaranteed the ability to sell at $95. Two weeks later, Company XYZ misses earnings and

Your right to sell at $95 is now very valuable. The option is worth at least $15 per share ($95 strike - $80 market price).

Strike Price minus Premium (In this example: $93). If you hold until expiration, the option expires

Imagine is currently trading at $100 per share . You believe the stock is overvalued and will drop soon due to an upcoming earnings report. Action: Buy to Open (BTO) Asset: 1 Put Option contract (represents 100 shares) Strike Price: $95 Expiration: 1 month from now Premium (Cost): $2.00 per share ($200 total) The Outcomes 1. The Bearish Win (Stock Drops)