The essentials in 30 seconds
- A protective put combines shares you already own with a bought put on the same underlying.
- Our 100 ETF shares at €100 total €10,000; the put costs another €200.
- A €95 strike leaves the initial €5-per-share decline uncovered.
- At expiry, the modelled maximum total loss is €700 including premium, before other costs.
- Not every ETF has listed options. Underlying, multiplier and settlement must match.
A put is a time-limited right to sell
A put option gives its buyer the right to sell a specified underlying at an agreed strike, subject to the contract terms. The right ends at expiry.
Holding matching ETF shares and buying a put creates a protective put. If the ETF falls, the put’s intrinsic value can offset further share losses below the strike. If the ETF rises, the shares still participate, but the paid premium reduces the result.
An ETF is an exchange-traded fund. Its option is a separate contract; owning an ETF does not mean a suitable option exists.
Assumptions for the €10,000 portfolio
One consistent hypothetical model
- 100 shares of an invented ETF at €100: portfolio value €10,000.
- One put on exactly that ETF, strike €95.
- Assumed multiplier: 100 shares per contract.
- Assumed premium: €2 per share, or €200 per contract.
- Compare values only at expiry, without fees, tax, distributions or financing.
The premium is paid in addition to the portfolio. The holding remains 100 shares, so the total outlay is €10,200. Funding the premium by selling shares would change the share count and require a new calculation.
The multiplier sets how many shares one option covers. Here, one put covers all 100 ETF shares. Its premium is 2% of the starting portfolio value for the assumed term, not automatically 2% per year.
Change the ETF price at expiry
Move the price below and above €95. Below the strike, put intrinsic value offsets each additional euro of loss per covered share in this model. Above it, the premium remains the cost of protection.
100 ETF shares · starting price €100 · strike €95 · one put with 100-share multiplier · extra premium €200.
Solid: ETF + put − premium · Dashed: ETF alone. Horizontal axis: ETF expiry price.
- ETF value
- €8,000
- Put intrinsic value
- €1,500
- ETF + put, gross
- €9,500
- Economic value after €200 premium
- €9,300
- Result versus €10,000 starting portfolio
- -€700
Only at expiry, identical underlying and full coverage. No fees, tax, distributions or financing. Economic ending value deducts the already paid premium in the calculation; it is not a separate cash payout.
Three outcomes: €110, €95 and €80
| ETF price | ETF value | Put value | Gross total | After premium | Result* |
|---|---|---|---|---|---|
| €110 | €11,000 | €0 | €11,000 | €10,800 | +€800 |
| €95 | €9,500 | €0 | €9,500 | €9,300 | −€700 |
| €80 | €8,000 | €1,500 | €9,500 | €9,300 | −€700 |
* Against the starting €10,000 portfolio, after accounting economically for the extra premium. Equivalently, gross total minus €10,200 total outlay.
At €80, shares are worth €8,000 and put intrinsic value is (€95 − €80) × 100 = €1,500. Together that is €9,500 gross, or €9,300 after counting the premium once.
At €110, the put has no intrinsic value at expiry. Shares are worth €11,000; the result after premium is +€800 instead of +€1,000 without the put.
The price of protection and the loss that remains
From €100 to the €95 strike, the shares lose €5 each: €500 in total. Add the €200 premium and the modelled expiry loss floor is €700. The hedge does not eliminate loss.
A closer strike, longer term or more volatility priced in can raise the premium, all else equal. Market quotes also reflect spreads and liquidity.
Above the strike, this simplified strategy has no fixed gain cap. The break-even ETF price at expiry is €102: 100 shares then cover the initial €10,000 plus €200 premium.
What to check in a real contract
Check the underlying, currency, multiplier, term and broker access. Eurex lists options on selected ETFs with different contract sizes; 100 shares is not a universal European contract rule.
A put on an index or another ETF may cover similar market risk without matching the portfolio exactly. The difference is basis risk. Currency and the number of contracts can add further mismatches.
With physical delivery, the right to sell is implemented by delivering ETF shares at the strike. The put value in our table is its economic equivalent; it is not paid again on top of shares already sold at the strike. Cash-settled contracts follow different rules.
Before expiry, the put can have time value as well as intrinsic value. Selling the combination early is therefore different from this expiry calculation. Protection ends at expiry; renewing it requires another contract and premium.
Our guide to exercise, delivery and assignment explains the settlement steps. This example does not recommend a particular hedge.
Further detail: show assumptions and context
For expiry price S in the perfectly matching model: ETF value = 100S; put intrinsic value = 100 × max(95 − S, 0); economic ending value = 100S + 100 × max(95 − S, 0) − 200 = 100 × max(S, 95) − 200.
Result = economic ending value − €10,000, equivalently ETF value + put intrinsic value − €10,200. The premium is counted once. The maximum modelled loss is 100 × (€100 − €95) + €200 = €700.
The chart shows terminal values, not live mark-to-market values. Full share-count coverage is not a continuously delta-neutral hedge. Distributions, adjustments, taxes, execution costs, exercise deadlines and settlement risks are outside the model.
What to learn next
Put strike, premium and buyer risk together.
Explore how price changes the payoff.
Separate economic value from contract settlement.
Glossary
- Protective put
- Shares already held combined with a bought put on the same underlying.
- Strike
- The exercise price agreed in an option contract.
- Basis risk
- A mismatch between portfolio performance and the hedge’s underlying.
BeInOptions Academy
Practise put basics in the Academy
Understand the sale right, premium and term before more complex hedges.
Visit the Academy