The buyer's risk is limited to the amount of the premium. Index options have strike prices that are set at intervals from one to ten points. If you bought an index put with a strike price of 75.00, you participate in moves in the underlying index below 75. New strike prices are added in response to market movement in the underlying index. The seller of the option would pay the buyer this cash amount.
Results vary, based on the settlement value at expiration.
Settlement value, in this example, is calculated based on the opening prices of the component stocks on the last business day prior to expiration. Your call break-even point is an index level equal to the strike price plus the premium. The higher the the underlying index settlement value is above the break-even point at expiration, the higher your profit. If the settlement value at expiration is under the break-even point, however, you lose all or part of the premium. The maximum you can lose, as a buyer, is the amount of the premium.