How Does a Put Option Provide a Similar Hedging Function to a Short Futures Contract? ⎊ Path

How Does a Put Option Provide a Similar Hedging Function to a Short Futures Contract?

A short futures contract locks in a selling price for the underlying asset, hedging against a price drop but forfeiting potential gains. A long put option, conversely, gives the holder the right to sell the underlying asset at a fixed strike price.

This sets a floor price, hedging against a drop, but the holder retains the upside if the price rises, minus the premium paid. The put option provides downside protection with unlimited upside, unlike the futures contract.

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Glossar

Short Futures Contract

Definition ⎊ A short futures contract is a standardized agreement obligating the holder to sell a specified quantity of a cryptocurrency, such as Bitcoin or Ethereum, at a predetermined price on a designated future date.