Contingent-Premium Put Option
Computes the fair premium of a contingent-premium (pay-later) put option. As in the call version, the buyer pays only at expiry and only if the put finishes in the money. It's an attractive structure for those wanting protection with no upfront outlay, at the cost of a higher premium if the insurance is actually triggered. The price comes from the Black-Scholes put value divided by the exercise probability. Enter price, strike, rate, dividend, volatility and term.
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Contingent-Premium Put Option
Computes the fair premium of a contingent-premium (pay-later) put option. As in the call version, the buyer pays only at expiry and only if the put finishes in the money. It's an attractive structure for those wanting protection with no upfront outlay, at the cost of a higher premium if the insurance is actually triggered. The price comes from the Black-Scholes put value divided by the exercise probability. Enter price, strike, rate, dividend, volatility and term.
Protection now, bill only at expiry
A put option with a contingent premium offers the same arrangement as the call version, now aimed at protection. The buyer sets up the hedge without spending a cent upfront, and only pays the premium at the end, and only if the put finishes in the money, that is, if the protection was actually triggered.
For those seeking insurance against declines without tying up cash today, it's a seductive structure, but it has an embedded cost. The premium charged at expiry is higher than a traditional put's, because it must compensate the seller for the risk of receiving nothing in the scenarios where the asset rises. The fair price comes from the Black-Scholes put value divided by the exercise probability.
Enter the asset price, the strike, the rate, the dividend, the volatility and the term. The tool returns the put's contingent premium. It's worth seeing it as insurance with a deferred deductible: you don't pay in advance, but if you need to use it, the bill comes higher than it would with ordinary insurance bought upfront.
Related Tools
Contingent-Premium Call Option
Computes the fair premium of a contingent-premium call option, also called pay-later. The buyer pays nothing upfront: the premium is only due at expiry, and even then only if the option finishes in the money. For the deal to be fair, that deferred premium must be larger than a plain call's, compensating for the risk the seller receives nothing. The formula divides the Black-Scholes value by the exercise probability. Enter price, strike, rate, dividend, volatility and term.
Black-76 Put Price (Options on Futures)
Works out the premium of a European put option on futures with the Black-76 model, the Black-Scholes version for when the underlying is a future or forward contract. The price is e^(−rT)·[K·N(−d2) − F·N(−d1)], where d1 and d2 come from the futures price, the strike, the volatility and the term. The future already carries the cost of carry, so the discount factor multiplies both terms and interest does not enter d1. It applies to puts on commodities, indices and rates. Enter the futures price, the strike, the risk-free rate, the term in years and the annual volatility.
Cash-or-Nothing Put
Computes the price of a cash-or-nothing put: it pays a fixed amount if the asset finishes below the strike, and nothing otherwise. It's the downside version of the digital option, the complement of the cash-or-nothing call. The price is the payout discounted and multiplied by the risk-neutral probability of the asset finishing below the strike, Q·e^(−rT)·N(−d2). Enter the spot price, the strike, the interest rate, the term, the volatility and the payout.
The results provided by this tool are for general informational and educational purposes only and do not constitute professional, financial, medical, legal, tax or accounting advice. Always confirm important decisions with a qualified professional and official sources.