Put Spread — Cheaper Protection
The problem: a plain Long Put is too expensive
In the previous lesson we saw: a Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → for a 200 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → quantity, strike $90, costs $1,300 over 120 days. Compared with the portfolio's value (126 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → x $88 = $11,088), that's 11.7% over 120 days, or about ~35% annualized. Too expensive.
The solution — a Put Spread: you buy protection (Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson →) and at the same time sell another piece of protection (Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson →). That gets you some of the money back.
Analogy: insurance with a deductible
Picture home insurance. Full coverage with no deductible costs $1,000 a year. But if you agree to cover the first $5,000 of losses yourself, the insurance costs only $400. You take on part of the risk, but you save money. A Put SpreadPut SpreadLong put + short put. Cheaper protection than a plain put, but with limited coverage.Read the lesson → works exactly the same way.
How a Put Spread works
It's made up of two legs:
| Leg | What you do | Strike | Quantity | Price |
|---|---|---|---|---|
| Upper | Buy a PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → (protection) | $90 | 200 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → | -$1,300 (you pay) |
| Lower | Sell a PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → (get part back) | $65 | 100 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → | +$500 (you receive) |
| Net cost | -$800 |
You saved $500 — that's 38% cheaper.
Full protection works between $90 and $65. Below $65 protection still grows, but at half speed — the PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → you sold starts costing you and eats up half the move. BreakevenBreakevenThe breakeven point — the price at which a position is neither profitable nor at a loss.Read the lesson → for this two-leg version: 200 x ($90 - S) = $800 → S = $86. So this is cheaper than a plain Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson →, but it protects you less once the price drops deep.
Our strategy's structure (three legs)
We use three legs — with two Short PutsPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson →:
| Position | Strike | Quantity | Price | Delta (per 1 SOL) |
|---|---|---|---|---|
| Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → | $90 | 200 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → | -$1,300 | -0.42 |
| Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → | $65 | 100 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → | +$500 | +0.18 |
| Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → | $60 | 100 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → | +$300 | +0.12 |
| Net | -$500 | -54 (position delta) |
Net cost: $500 over 120 days = 4.5% of the $11,088 portfolio, or about ~14% annualized (instead of ~35%). More than twice as cheap.
Two different bases — don't mix them up: options P&LP&LProfit & Loss — used to evaluate strategy results.Read the lesson → is calculated on the options quantity (200 / 100 / 100 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →), while the protection cost in percent is calculated on the portfolio value (126 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → x $88 = $11,088). Those quantities differ on purpose.
The DeltaDeltaAn option's price sensitivity to the underlying price. Delta 0.50 means: if the underlying rises $1, the option price rises about $0.50.Read the lesson → column shows sensitivity to a $1 price move, per one SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →. Position delta comes from multiplying by quantity: -0.42 x 200 = -84, +0.18 x 100 = +18, +0.12 x 100 = +12 → net -54. That means: if SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →'s price drops $1, this options structure gains about $54.
Why two Short Puts instead of one?
Two smaller Short PutsPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → ($65 and $60) instead of one large one spread the risk across several levels. When SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → is between $60 and $65, only one leg (100 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →) is active — below $60 both are active. Risk arrives gradually, not in one step.
What happens at different prices?
| SOL price | Long Put $90 | Short Put $65 | Short Put $60 | Total result |
|---|---|---|---|---|
| $120 | -$1,300 | +$500 | +$300 | -$500 |
| $100 | -$1,300 | +$500 | +$300 | -$500 |
| $90 | -$1,300 | +$500 | +$300 | -$500 |
| $80 | +$700 | +$500 | +$300 | +$1,500 |
| $70 | +$2,700 | +$500 | +$300 | +$3,500 |
| $65 | +$3,700 | +$500 | +$300 | +$4,500 |
| $60 | +$4,700 | -$0 | +$300 | +$5,000 |
| $50 | +$6,700 | -$1,000 | -$700 | +$5,000 |
| $40 | +$8,700 | -$2,000 | -$1,700 | +$5,000 |
Most important: between $65 and $90 — full protection. Below $60 — protection is fixed at $5,000.
Breakeven: the options position turns from negative to positive at 200 x ($90 - S) = $500 → S = $87.50. Below this price the options pay off, but that's not a profit — they're offsetting the falling value of SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →.
Map of the protection zones
| Price zone | What happens | Protection level |
|---|---|---|
| Above $90 | OptionsOptionA financial contract that grants the right (but not the obligation) to buy or sell at a set price.Read the lesson → expire worthless | None — you lose only $500 |
| $65 — $90 | Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → earns | Full protection |
| $60 — $65 | Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → earns, Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → starts costing | Partial protection |
| Below $60 | All options are active | Fixed protection ~$5,000 |
Tail risk: Below $60 protection stops growing. If SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → fell 80% (to about $18), the Short PutsPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson →' losses would grow at the same pace as the Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson →'s gains, so the options result would stay at $5,000 — but SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →'s value would keep falling. That's the trade-off: cheaper protection, but limited coverage in extreme scenarios.
Spread vs full protection
| Long Put $90 only | Put Spread (3 legs) | |
|---|---|---|
| Cost over 120 days | $1,300 | $500 |
| Annualized (on $11,088) | ~35% | ~14% |
| Protection from -30% (to ~$62) | Full | Almost full — already in the partial zone |
| Protection from -50% (to ~$44) | Full | Fixed ($5,000) |
| Protection from -70% (to ~$26) | Full | Fixed ($5,000) |
Short Put risk — what's the worst that can happen?
When you sell a $65 PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → (100 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →), you take on the obligation to "buy" SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → at $65. If the price falls below that:
- SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → $50 — Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → $65 loss: ($65 - $50) x 100 = $1,500 (minus the $500 premium received — $1,000 net)
- SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → $40 — Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → $65 loss: ($65 - $40) x 100 = $2,500 (net -$2,000)
But at the same time, Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → $90 (200 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →) generates:
- SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → $50 — Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → value: ($90 - $50) x 200 = $8,000 (net +$6,700)
So the options position's result is still positive (+$5,000), even though SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → itself has dropped sharply. A problem only arises if the Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → is too large.
How to reduce the cost even further?
| Method | Effect | Risk |
|---|---|---|
| Lower Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → strike | Cheaper | Less protection |
| Higher Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → strike | More premium | Higher risk |
| More Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → legs | More premium | More tail risk |
| Shorter timeframe | Cheaper | Needs rolling more often |
Our strategy chose a balance: $90 / $65 / $60 with 120 days.
The spread and its daily cost
Put SpreadPut SpreadLong put + short put. Cheaper protection than a plain put, but with limited coverage.Read the lesson → theta (how much it costs per day):
| Leg | Per day |
|---|---|
| Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → theta | -$3.25 |
| Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → $65 theta | +$1.50 |
| Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → $60 theta | +$1.00 |
| Net Put Spread theta | -$0.75 |
Add the Short CallCallAn option type that grants the right to BUY at the strike price. The opposite of a put.Read the lesson → theta (+$0.75), and all the options' theta balances out to nearly zero: -$3.25 + $1.50 + $1.00 + $0.75 = $0.
That does NOT mean the protection is free. Only the daily time decay nets out to zero — the cost still stands at $500 net premium, plus the tail risk you've taken on below $60.
With a Put SpreadPut SpreadLong put + short put. Cheaper protection than a plain put, but with limited coverage.Read the lesson → you can now build protection to fit your own budget — you choose how much risk you take on yourself and how much protection you buy, instead of taking whatever price comes first.
Next step: let's look at how a Covered CallCovered CallAn options strategy: sell a call option while holding the underlying asset. Generates premium income but caps upside.Read the lesson → generates extra income.
Spread logic only sticks once you calculate it with real premiums. This paper exercise (~20 min) is a plan on paper — no trading.
This is a paper plan — DON'T BUY or SELL anything. In reality a Short Put requires collateral and carries real risk, so first we learn to calculate it.
This is learning, not investing — use only small amounts you treat as tuition.
You just calculated a three-leg Put Spread's net cost and protection zone yourself — a structure most crypto investors can't even name.