Buy To Open Put Example Official

Since the market price is higher than your $95 strike price, the option is "out of the money." As expiration approaches, the "time value" of the option decays.

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

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

The price at which you have the right to sell the stock.

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. Since the market price is higher than your

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 the stock price plunges to . You simply lose the $200 you paid to open the position

Strike Price minus Premium (In this example: $93).