Ms. Pessimist believes that BMI will fall from its current $160 per-share price. She buys a put. Her put option contract gives her the right to sell a share of BMI stock at $150 one year from now. If the price of BMI is $200 on the expiration date, she will tear up the put option contract because it is worthless. That is, she will not want to sell stock worth $200 for the exercise price of $150.

On the other hand, if BMI is selling for $100 on the expiration date, she will exercise the option. In this case, she can buy a share of BMI in the market for $100 per share and turn around and sell the share at the exercise price of $150. Her profit will be $50 (= $150 − 100) .

Therefore, the value of the put option on the expiration date will be $50.