Stock Markets Exposed

How do i make money off of a stock i know is going to drop?

Lets say i know, legally, that a companys stock is going to tank and drop at least 10 points in value. Ive got $5000 to invest and i want to know how to capitalize on this as much as i possibly can... a put option seems like the way to go since i could only borrow a few thousand more dollars on margin. How do put options work? ive been looking on E*trade and a few other sites for some info and its all giberish to me. (in-the-money, strike price, etc) Can i cash out whenever i want during the life of the contract or is it just the 3rd friday of the month? How do i figure out how much a contract will cost? its currently around $60 a share and i expect it to be at $45 in the next 2 months. please take into account that i am bad at math. Is there a limit to how many contracts i can buy? Could i buy 1000 contracts @ $5 each? If/when the stock drops i have someone to spot me the money to buy the necissary shares to fulfill the contracts, so the sky is the limit

Public Comments

1. You either short the stock or buy put options on it.
2. you do what martha did, pull out. and fast.
3. I guess you would want to definitely buy put options on the stock. European style option means it can only be exercised on the last Friday before its expiration date. An American style option can be exercised anytime. From my rudimentary option knowledge, I beleive to figure out the amount that you would stand to make you would compute #of contracts x strike price x 100 Example: 100 contracts of XYZ 5 put 100*5*100= 50,000 (upon exercising, you would make $50,000) less what you paid to buy the put is your profit.
4. You have a fundamental flaw in your logic. If you "know" that the price is going to drop, you're wasting your money on options. Take the short position on some forwards. You're guaranteed to win. Options cost more than forwards... So if you're sure about the fall, why pay more when you know you will exercise the option?