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

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 . 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. A "Buy to Open" (BTO) put order is

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) No matter how low the stock falls, you

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

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

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