Your maximum risk is capped. You simply lose the $200 you paid to open the position. Why Traders "Buy to Open" Puts
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. 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. Your maximum risk is capped
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 already own 100 shares of XYZ,
The price at which you have the right to sell the stock.
The contract is now worth $1,500. After subtracting your initial $200 investment, your profit is $1,300 . 2. The Hedge (Stock Stagnates) The stock stays flat at $100 .
Two weeks later, Company XYZ misses earnings and the stock price plunges to .