Example | Buy Put Option

You can profit from price drops without owning the stock.

You lose the $300 premium , but your stock is now worth $2,000 more than when you started. 🔑 Key Takeaways Bearish Bet: You buy puts when you expect prices to fall. Limited Risk: The most you can lose is the premium paid. buy put option example

Imagine you own 100 shares of , currently trading at $150 . You are worried the price might drop after an upcoming earnings report. To protect your investment, you buy a put option: Strike Price: $145 (The price you can sell at) Expiration: 1 month from now Premium: $3 per share ($300 total for 100 shares) 📉 Scenario A: The Stock Price Drops If TechCorp shares tumble to $130 : Your shares are now worth $13,000 on the open market. Your put option allows you to sell them for $145 ($14,500). You can profit from price drops without owning the stock

You saved $15 per share (minus the $3 premium), limiting your loss significantly. 📈 Scenario B: The Stock Price Rises If TechCorp shares climb to $170 : You wouldn't use your option to sell at $145. You let the option expire worthless. Limited Risk: The most you can lose is the premium paid

Puts act as "price insurance" for stocks you already own.