You wouldn't exercise your right to sell at $95 if you can sell on the open market for $110.
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 . buy to open put example
A "Buy to Open" (BTO) put order is the classic way to bet against a stock or hedge a position you already own. When you execute this trade, you are paying a premium to acquire the a specific stock at a set price. The Scenario You wouldn't exercise your right to sell at
Strike Price minus Premium (In this example: $93). When you execute this trade, you are paying
Your maximum risk is capped. You simply lose the $200 you paid to open the position. Why Traders "Buy to Open" Puts
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 price at which you have the right to sell the stock.