Open Put Example: Buy To

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 .

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. 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. If you hold until expiration, the option expires

The price at which you have the right to sell the stock. Unlike shorting a stock, your maximum loss is

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

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.