Put — portfolio insurance
SOL falls 55%, yet Evelyn loses only $900 instead of $9,600 because she bought a Put with a $90 strike. A home-insurance analogy for premium, strike and floor, what the protection costs per cycle (about 22% a year in the lesson example) and why it is cheapest in calm markets and priciest in panic.
The insurance analogy
Imagine you own a house worth $100,000. You buy insurance with a $500 annual premium. If the house burns down — you get compensated. If everything's fine — you just lose the $500.
A Put option works exactly the same way:
| Insurance element | Home insurance | Put option |
|---|---|---|
| Asset | House ($100,000) | 126 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → ($11,088) |
| Premium | $500 per year | $1,300 per 120 days |
| Protection floor | The full value of the house | Below the strike price |
| Who pays? | You (the owner) | You (the option buyer) |
| Who compensates? | The insurance company | The option seller |
You pay a premium and get the right to sell SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → at a fixed price (the strike). If the price falls — you're covered. PremiumPremiumThe price of an option. Paid by the buyer, received by the seller.Read the lesson → = the insurance fee. StrikeStrikeAn option's exercise price. A $90 put means the right to sell at $90.Read the lesson → = the protection level. The lower the strike — the cheaper it is, but the less protection you get. Just like insurance: a lower fee means a bigger "deductible."
Notice: below the strike the loss STOPS (the protection kicks in), while above it the gain grows almost like holding SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → alone, just minus the premium.
Choosing the strike — how much protection do you want?
Choosing the strike is the most important decision. It's like choosing an insurance level:
Practical example: SOL at $88
We want to protect a 200 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → position for 120 days.
In this example we use SOL = $88. At the time of writing (2026-09) the market was around $102 — the numbers are illustrative, the mechanism does not depend on the price. The $6.50 premium below is likewise a round teaching number; always take real premiums live from DeribitDeribitA crypto options exchange. In our strategy this is where we buy put protection and sell covered calls.Read the lesson →.
This lesson has two different numbers in play, and each one has its own job:
- 200 SOL — the PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → option's size (notional). The premium is calculated from this ($6.50 x 200 = $1,300), and so are ALL the P&LP&LProfit & Loss — used to evaluate strategy results.Read the lesson → tables in this lesson.
- 126 SOL — our strategy's KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → collateral ($11,088). We use this one to work out what the insurance costs as a percentage.
The P&LP&LProfit & Loss — used to evaluate strategy results.Read the lesson → tables below show the purely protected position: 200 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → + a 200 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson →. That way you see the insurance mechanism itself, without the other legs. The full portfolio (collateral + LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → + Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → legs) gets put together later.
| Strike | Price per SOL | Total price (200 SOL) | Protects from |
|---|---|---|---|
| $90 (ITMITMIn The Money — an option that has intrinsic value.Read the lesson →, +2.3% above price) | $6.50 | $1,300 | Right from the current price |
| $85 (-3.4%) | $4.80 | $960 | -3.4% and below |
| $80 (-9.1%) | $3.20 | $640 | -9.1% and below |
| $70 (-20%) | $1.50 | $300 | -20% and below |
$6.50 per SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → is a round teaching number, convenient for tables. It corresponds to a fairly low volatility level (~30% IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson →), so in a real SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → market this protection usually costs more.
Here is what the market looked like on 2026-09-05 (DeribitDeribitA crypto options exchange. In our strategy this is where we buy put protection and sell covered calls.Read the lesson →, SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → around $102): a comparable PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → — strike about 2% above the price, ~111 days to expiry — cost about $12.3 per SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →, i.e. ~12% of the price. The lesson's $6.50 is only ~7.4% of $88.
That does not weaken the conclusion, it strengthens it: the real cost of a Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → on its own is roughly twice what this example shows. Prices change daily — when you size your own position, take a live premium.
We chose: Strike $90 (Slightly ITM)
Why? Because our LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → position already works from -28% up to the current price. We need protection that kicks in as early as possible.
What happens at different prices?
200 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → (bought at $88), Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → StrikeStrikeAn option's exercise price. A $90 put means the right to sell at $90.Read the lesson → $90, $1,300 paid. All numbers use the same 200 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → base:
| SOL price | Change | SOL value (200 SOL) | Put P&L | Net result |
|---|---|---|---|---|
| $120 | +36% | +$6,400 | -$1,300 | +$5,100 |
| $100 | +14% | +$2,400 | -$1,300 | +$1,100 |
| $94.50 | +7.4% | +$1,300 | -$1,300 | $0 (position breakeven) |
| $90 | +2.3% | +$400 | -$1,300 | -$900 |
| $88 | 0% | $0 | -$900 | -$900 |
| $80 | -9% | -$1,600 | +$700 | -$900 |
| $70 | -20% | -$3,600 | +$2,700 | -$900 |
| $60 | -32% | -$5,600 | +$4,700 | -$900 |
| $40 | -55% | -$9,600 | +$8,700 | -$900 |
How this is calculated: SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → value = (price - $88) x 200. PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → P&LP&LProfit & Loss — used to evaluate strategy results.Read the lesson → = max(0; $90 - price) x 200 - $1,300.
Notice the important part: the loss locks in at $900 not from $80, but already from strike $90 downward — because that's the level from which the PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → starts covering the drop. And since SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → is now at $88, i.e. already below the strike, the position is sitting right on that floor. It doesn't matter whether SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → falls to $60 or to $40 — you won't lose more than $900. That's the whole point of insurance.
On the upside, returns grow uncapped, just with a constant $1,300 drag.
The word "breakeven" means two different things in this trade:
- Position breakeven = entry price + premium = $88 + $6.50 = $94.50. From there the whole protected position (SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → + PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson →) is back to zero. This is the number used in the table above.
- Option breakeven = strike − premium = $90 − $6.50 = $83.50. From there the PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → itself, treated as a standalone trade, becomes profitable.
Both are correct — they simply answer different questions: the first is "when have I lost nothing", the second is "when has the insurance paid for itself".
Once you read this table, you can state your exact maximum loss before you even open the position — you weigh the risk with a number, not a gut feeling.
Is $1,300 over 120 days expensive?
Let's calculate it from the collateral base (126 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →):
- CollateralCollateralThe asset you deposit in order to borrow. In DeFi this is typically crypto (SOL, ETH).Read the lesson → value: 126 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → x $88 = $11,088
- Insurance cost: $1,300 (the PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → covers 200 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →)
- As a percentage: 1,300 / 11,088 = 11.7% per 120 days = ~35% per year (11.7% x 365/120)
That's very expensive. That's why we don't use a Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → on its own. In the next lesson you'll learn how a Put Spread cuts the cost almost 3x.
A Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → alone costs ~35% per year — that would wipe out the entire portfolio's return. That's why the next lesson on Put SpreadPut SpreadLong put + short put. Cheaper protection than a plain put, but with limited coverage.Read the lesson → matters so much — it cuts the net cost down to ~$500 per 120 days, i.e. ~14% per year on that same $11,088 collateral.
When to buy insurance?
An option's price depends heavily on market volatility — IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → (Implied VolatilityVolatilityThe degree of price fluctuation. High volatility means greater uncertainty about price movement.Read the lesson →, the expected volatility). The lower the volatility, the cheaper the same protection gets:
| Market mood | Volatility (IV) | Put price | What it means |
|---|---|---|---|
| Calm market | Low (40-50%) | Cheap | The same protection costs the least |
| Normal market | Medium (50-65%) | Normal | In 2026-09 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → ATMATMAt The Money — an option whose strike sits at the current price.Read the lesson → IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → was ~50% |
| After a big drop, panic | High (80-120%) | Very expensive | The same protection costs the most |
Two notes, without which this table misleads you:
- IV is not a single number. DeribitDeribitA crypto options exchange. In our strategy this is where we buy put protection and sell covered calls.Read the lesson → shows it per strike. On 2026-09-05 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → ATMATMAt The Money — an option whose strike sits at the current price.Read the lesson → IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → was ~50%, while deep OTMOTMOut of The Money — an option with no intrinsic value, only time value.Read the lesson → PutsPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → (strike ~$55–$65) were at 60–68%. This is called skew: protection against a deep drop is more expensive than ATMATMAt The Money — an option whose strike sits at the current price.Read the lesson →.
- Don't confuse implied with historical volatility. On the same day SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →'s historical (realised) volatility was ~74% while implied was ~50% — the market expected a calmer period than the one just past. Judge IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → not against a fixed table but by comparing it with the same instrument's own 30-day average: table boundaries go stale, a relative comparison does not.
The boundaries in the table are the 2026-09 market regime, not a permanent rule.
When you need insurance the most (after a big drop) — it's at its most expensive. Just like an umbrella: it costs $5 in the store, but $20 on the street during a downpour. The mechanism is simple: the same protection, bought during a calm period, costs several times less than in a panic, because IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → drives the premium up.
Put and collateral interaction
PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → protection works together with KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson →/AaveAaveEthereum lending protocol (v3). In our strategy: ETH collateral to a USDC loan.Read the lesson →:
- When the price drops — LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson → rises — liquidation risk
- The PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → option generates a profit when the price drops
- You can use that profit to top up collateral and lower the LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson →
A PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → doesn't just protect against losses — it also protects the lending position from liquidation.
What to watch while holding a Put
| Metric | What to watch | When to act |
|---|---|---|
| Delta | Is the protection still enough? | If the price rose, delta moves toward zero — less protection |
| Theta | How much does it cost per day? | If fewer than 30 days are left — time to roll |
| IV | Is the insurance getting more/less expensive? | High IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → = your existing PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → is worth more to sell |
Our Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson →'s delta is -0.42: for every $1 the SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → price drops, the option gains about $0.42 per SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → covered — for the 200 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → leg that's about $84. ThetaThetaAn option's change in value from the passage of time. Negative for the buyer (a cost), positive for the seller (income).Read the lesson → is -$3.25 per day: that's how much time value this protection loses every day. When you buy protection, theta is always negative — you pay for time.
Like the $6.50 premium, these two numbers are teaching figures — they were computed at a higher volatility level than today's. Always read your own position's delta and theta live in the DeribitDeribitA crypto options exchange. In our strategy this is where we buy put protection and sell covered calls.Read the lesson → interface: they change every day.
Next step: let's see how a Put SpreadPut SpreadLong put + short put. Cheaper protection than a plain put, but with limited coverage.Read the lesson → cuts the insurance cost almost 3x.
The best way to understand insurance cost is to calculate it for your own hypothetical position. All on paper (~20 min): no buying, no registration.
We're learning to calculate the insurance cost, NOT to buy options. DON'T BUY ANYTHING — the whole position stays on paper.
This is learning, not investing — use only small amounts you treat as tuition.
You just turned the insurance cost into a percentage of the portfolio and found the breakeven — most people never do this, and you're already evaluating the option as a tool.