Put options

Hedging with put options

A Put option is a financial contract that gives the buyer the right, but not the obligation, to sell a specified quantity of an underlying asset (eg: ETH or BTC), at a specified price within a specified time period (usually there are monthly and quarterly maturities). This can be useful for a company receiving revenues in tokens as a way to protect against potential losses if the market price of the underlying asset falls. For example, if a company holds a large quantity of ETH (or expects regular revenues in ETH) and is not sure whether the ETH price will rise or fall, it can buy a put option to hedge against potential revenue losses. This way, even if the price of ETH does fall, the company will still be able to sell its ETH at the higher price specified in the put option contract. And if the price of ETH does rise, the company can just sell its ETH at market price, indeed the put option is an option.

This can help the company to limit its potential losses and protect its revenues.