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Explain the Risk for the Seller of an OTM Put Option

Risk is the underlying price dropping below the strike, leading to a large loss.
Greeks.live04.12.25

Explain the Risk for the Seller of an OTM Put Option.

The seller (writer) of an OTM Put option is obligated to buy the underlying crypto at the strike price if the buyer chooses to exercise. The risk is that the underlying price drops significantly below the strike price.

The maximum loss is substantial, calculated as the strike price minus the premium received, as the crypto price can fall to zero.

What Is an ‘Out-of-the-Money’ (OTM) Option?
Explain the Concept of ‘In-the-Money’ for Both Call and Put Options
What Is the Definition of an “Out of the Money” (OTM) Option?
Give a Concrete Example of a DAO Hedging Its Stablecoin Exposure
What Happens to the Value of an OTM Option at Expiration?
What Is the Maximum Loss for the Seller (Writer) of a Crypto Put Option?
How Does the Moneyness of an Option (ITM, ATM, OTM) Relate to the Strike Price?
What Is the Difference between an In-the-Money and Out-of-the-Money Call Option for a DAO Seller?

Glossar

Strike Price

Reference ⎊ The Strike Price is the predetermined reference level set at the contract's inception against which the underlying crypto asset's spot price is compared at expiration or exercise.

Otm Put Option

Protection ⎊ This instrument functions as a cost-effective mechanism for securing a minimum selling price for an underlying asset, even when the strike price is currently below the spot rate.

OTM Put

Valuation ⎊ An Out-of-the-Money (OTM) Put option within cryptocurrency derivatives represents a contract conferring the right, but not the obligation, to sell an underlying asset at a predetermined strike price, a price currently above the asset’s market value.

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