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

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

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