Put Option

When a trader buys a put, they are essentially purchasing insurance against a falling price: the contract locks in a fixed selling price today that can be used later, no matter how far the market drops. In return for that protection, the buyer pays a one-time premium to the option's seller (the "writer"), who takes on the obligation to buy the asset at the strike price if the holder chooses to exercise.

Crypto exchanges that list options, such as Deribit, mostly use European-style contracts, meaning they can only be exercised at expiry rather than at any point before it, and they settle in cash or a stablecoin rather than through delivery of the underlying coin. A put becomes profitable, or "in the money," once the market price falls below the strike price by more than the premium paid; if the price stays above the strike, the option simply expires worthless and the buyer's loss is capped at what they paid for it.

Traders use puts for two main purposes. Speculators buy them to profit from an expected price drop without opening a short position or borrowing an asset on margin. Holders of Bitcoin or Ethereum use them defensively, buying puts as a hedge so a sharp downturn in their spot holdings is offset by gains on the option, similar to buying insurance on a portfolio. Because crypto prices are highly volatile, put premiums tend to be expensive relative to traditional markets, and demand for downside protection typically spikes around major futures and options expiries.