Buy To Open Put Example -

Your maximum risk is capped. You simply lose the $200 you paid to open the position. Why Traders "Buy to Open" Puts

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

Two weeks later, Company XYZ misses earnings and the stock price plunges to . Your maximum risk is capped

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) The option is worth at least $15 per

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.