Derivatives · Core
Put Option
A put option is the right to sell the underlying at a strike — convex downside, or a hedge that costs carry.
Definition
European put payoff = max(K − S, 0). Puts embed a floor. Equity puts often trade rich to calls (skew) because the crash is the feared jump. Short puts are synthetically long the asset with a coupon.
Why it matters
Portfolio insurance, crash hedges, and overwriting all start with puts. The cost of the floor is a drag in quiet years.
Case
A 1×1 put spread into a known event costs less than the outright and caps the win if the crash is worse than the long strike. You bought a band, not infinity.
How to read it
Skew, tenor, and what you are hedging (spot, vol, or gap). A cheap put that is far OTM is cheap because it is usually zero.
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