Crypto and derivatives · updated October 21, 2026
What is a put option and how do you calculate the profit
A put option gives you the right to sell an asset at a set price (the strike price), until the expiry date. It is used in two ways: to profit from a falling price, or as insurance for shares you already own.
Put option formula
- Strike price
- The price at which you have the right to sell.
- Premium
- What you paid for the option, per share.
- max(…, 0)
- If the price is above the strike, you do not use the right and the option is worth 0.
Worked example
You buy a put with a $100 strike and a $4 premium, for 100 shares. At expiry the stock has fallen to $80.
Your break-even is $96 (100 − 4). If the stock had stayed above $100, you would have lost the $400 you paid.
How to read put option
As insurance, a put works like a policy: you pay a premium to know the minimum price at which you can sell.
When put option can fool you
Insurance costs money: if you buy puts every month and the market does not fall, the premiums eat into your return. Selling puts: you collect the premium, but if the price crashes you must buy at the strike, far above the market.
Related terms
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Questions about put option
What is the difference between buying a put and short selling?
With a put, the most you can lose is the premium. With a short, if the price rises, the loss has no limit.
How do I protect myself with a put?
If you own 100 shares, you buy a put on them. If the price falls below the strike, the gain on the option covers part of the loss on the shares.
These explanations are for information only. They are not a recommendation to buy or sell.
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