Put Option Cost Calculator

A put option gives its holder the right to sell a stock at a fixed strike price until the option expires, whatever the market price does in the meantime. Bought against shares already held, it works like insurance on the position: the premium is paid up front and is not recoverable, and what it buys is a floor under the sale price. This calculator prices that premium: the total paid, what it represents as a share of the position's market value, and what the same rate would come to over a full year.

A worked example

Take the sample figures used on this page: 1,000 shares held at 50, a market value of 50,000. Ten put contracts, each covering 100 shares, at a strike of 45 and a premium of 1.50 per share cost 1,500 in total. That is 3.00% of the position's market value for 30 days of cover, which annualises to 36.50%. If the stock is above 45 when the options expire they lapse and the premium is gone; if it is below 45 the puts can be exercised and the shares sold at 45, so the loss on the combined position stops at 6.50 per share, the 5.00 fall to the strike plus the 1.50 premium.

Which inputs move the cost

Only two inputs move the headline cost, and both move it exactly in proportion: the premium per share and the number of contracts. Everything else leaves the total untouched and moves the derived rows instead.

The stock price moves four of them. It sets the denominator of both percentage rows, where the effect is reciprocal rather than proportional: a 1% higher price lowers the cost percentage by 0.99% and a 1% lower price raises it by 1.01%. It also enters the break-even price, which is the stock price plus the premium, and the maximum-loss row, which is the fall from the stock price to the strike plus the premium.

Days to expiry moves the annualised figure alone. The strike price moves the last row alone, and what that row is depends on where the strike sits. While the strike is at or below the stock price plus the premium the row reports a maximum loss, and a 1% higher strike shrinks it by the strike divided by the maximum loss, expressed as a percent. That is 6.92% at the sample figures used on this page, and the same in every currency, because the defaults hold the strike at 90% of the stock price and the premium at 3% of it. That ratio is not stable as the strike rises: it reaches 11.9 at a strike of 95% of the stock price and 16.2 at 97%, and grows without limit as the strike approaches the stock price plus the premium, where the maximum loss reaches zero. Past that point the row becomes a locked-in gain, and a higher strike then increases it rather than shrinking it.

The number of contracts steps in whole units, so at a default of ten the smallest change available is a tenth of the value rather than one percent of it.

What the annualised figure means

The annualised row scales the period entered up to a year in a straight line: the cost percentage multiplied by 365, divided by the days remaining. At 3.00% over 30 days that gives 36.50%. It is a rate of spend rather than a quotation for a year's cover, and the distinction matters in one direction. Rolling the same 30-day contract twelve times would cost around 36.00% at an unchanged premium, so the row is close to what a rolling hedge actually costs. What it overstates is a year bought as a single longer-dated contract: the time-value component of a premium scales with roughly the square root of the time remaining rather than with time itself, so one twelve-month contract is not usually twelve times the price of a one-month one. The figure's use is putting contracts of different lengths on a single basis.

Why two rows assume the shares are held

Two of the rows assume the shares are held alongside the put, and are labelled accordingly. The break-even price is what the stock has to reach for the combined position to recover the premium, so it sits at the current price plus the premium. It does not move when the strike changes, because the strike sets the floor rather than the recovery point. That holds inside the calculator, which keeps the premium fixed while the strike varies. In a live market a different strike is quoted at a different premium, so both figures would move together. The maximum loss per share is the fall from the current price to the strike plus the premium paid. A put bought on its own, with no shares behind it, behaves differently: it breaks even at the strike less the premium, and the premium is the whole of what was staked on it.

What the calculator does not price

The calculator prices the premium as entered and nothing else. It does not model how the option's value changes as time passes or as volatility moves, both of which alter what the contract is worth long before expiry. Early exercise, assignment, commissions, bid-ask spreads and margin treatment are all outside it, as is any change in the stock price itself. The contract multiplier is fixed at 100 shares, which is the standard for listed equity options in the United States; other venues and index options use different multipliers, and the total scales directly with whichever applies.

Buying premium against selling it

Buying a put and selling one are opposite sides of the same contract. The buyer pays the premium and holds the right to sell at the strike; the seller receives the premium and takes on the obligation to buy at the strike if the option is exercised against them. The premium is the price of that transfer, and it is what this calculator measures. Whether any particular premium was high or low relative to what followed is a question about that contract, and the calculator prices it as entered rather than judging it.