Buy To Open Put Example < 90% TOP >

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

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) buy to open put example

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

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 . Action: Buy to Open (BTO) Asset: 1 Put

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

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.

You wouldn't exercise your right to sell at $95 if you can sell on the open market for $110.