Long put
A long put is one bought option: the right, not the obligation, to sell 1,000 shares (one ICE contract) at the strike until expiry. The buyer pays the premium up front and can lose only that and the commission. On shares already held, the put sets a floor for a fixed period; its price, the premium, is lost in full if the share stays above the strike, so cover kept in place is paid for at every expiry. Bought without shares, it gains as the share falls below the strike less the premium. It is built for a holder wanting cover through a dated risk without selling, or for a bearish view with a worst case fixed in pounds.
The position: 1,000 BP shares and one December 500 put
The worst case for the holding is the fall to the strike plus the cost of the put: (500p − 530p) × 1,000 = −£300.00, less £183.90, less the £1.40 to sell or exercise the put, which is −£485.30, or 9.2% of the £5,300 holding. Above 500p the holding runs £183.90 behind the shares alone, so it breaks even at 548.25p before costs (548.89p after the half-spread and commission). The put on its own breaks even at 481.75p (481.11p after costs) and would be worth £4,816.10 after its cost if BP went to zero.
One structural point sets the size. An ICE BP option covers 1,000 shares, and cover comes in whole contracts. A holder of 600 BP shares who buys one put holds cover on 400 shares they do not own, and below 500p those 400 act as a bearish position; BP has no 100-share mini contract (see how much one contract covers).
The floor in pounds: shares and put together
The solid line is the holding plus the put on 18 December, against where BP settles. The dashed and dotted lines are the same position valued by the model on 16 October and today: the put still holds time value then, so the loss near 500p is smaller than at expiry and the gain above 548p a little larger.
The model puts a 37.7% probability on BP finishing below 500p, where the floor is in use, and 28.7% on it finishing below the put’s own breakeven of 481.75p (model probability, risk-neutral, lognormal, IV 26%). Neither is a forecast, and neither is the put’s delta (delta is not a probability).
What the cover costs, and what it costs a year
The premium buys 123 days of cover. A holder who wants the floor all year buys it again at every expiry, so the figure that decides whether protection is worth keeping is its cost a year. The table prices four strikes on four expiries from the same chain; the chart after it draws the annualised cost for every strike from 440p to 530p.
Why the cheapest put is not cheap: skew below 500p
The cost table prices every strike at the same 26%. Traded options are rarely priced at one volatility across strikes: on share indices, and often on single shares, out-of-the-money puts carry higher implied volatilities than at-the-money options (skew, on the IV page). The site could not find a free public source of skew data for ICE single-stock options (checked 27 September 2026, as the IV page records), so this section uses an illustrative line, IV(K) = 26% − 0.30 × ln(K/530), an assumption chosen for the lesson and not BP market data.
Three things change once skew is priced in. First, the far put stops looking cheap: the 420p put is £18.70 at a flat 26% but £48.46 on the line, 2.59 times as much, while the 500p put rises only from £181.87 to £200.99. Second, the far put needs a large fall to pay anything: bought on the tick at 4.75p (4.85p on the line), it breaks even at 415.25p, a fall of 21.7% in four months, and its delta at 26% is −53 share-equivalents against −326 for the 500p put, so a first 20p fall barely moves it. Third, skew moves probability into the tail: on the line the model gives 9.4% to a finish below 420p against 7.1% flat, and less to a finish just below 500p, 32.1% against 37.7%. The worked example keeps the model sheet’s flat 26%; on the line the same December 500 put would cost 20.10p, £19.12 more a contract.
How much of the holding one contract covers
At entry the put’s delta is −326 share-equivalents, so for a small move today the put offsets the price change on about a third of the 1,000 shares and the hedged holding moves like 674 shares. That is what a floor at 500p looks like from 530p, not a shortfall: the put is not meant to pay until BP is below the strike. Cover builds as BP falls, because gamma adds about 45.9 share-equivalents of delta for each 10p fall. After an instant fall to 455.75p, the lower edge of the model’s one-standard-deviation range for 18 December, the holding moves like 281 shares; after a rise to 616.35p, like 929.
Cancelling the whole 1,000-share delta today would take 3.06 puts. That is a different position: below 500p it would hold about 2,000 share-equivalents more in puts than shares, a bearish bet on top of the hedge.
Cover comes in whole contracts. BP options are 1,000 shares each and BP has no mini. Twenty-two UK names do have a 100-share ICE mini option alongside the standard one, among them Shell (8SQ) and Rolls-Royce (8RR), so a holding of 600 Shell shares can be covered in six 100-share steps; the minis are listed on ICE, and whether a broker offers them and quotes a two-way price has to be checked with that broker (contract sizes). Six minis cost six commissions: £10.20 at the £1.70 used on this site until a mini rate is published, against £1.40 for one standard contract. A holder of a spread portfolio rather than one share has the FTSE 100 index route instead, cash-settled at £10 a point, where the question becomes the hedge ratio between the portfolio and the index (hedge ratio; FTSE 100 options).
Three paths to 18 December after the 30 October results
The worked plan treats the put as insurance and follows three conventions, each a choice with a price. It closes the put by selling it, not by exercising it, unless it has decided to sell the shares. After a large fall it sells the put and buys a lower strike for the same expiry (a roll down), banking most of the gain while keeping some cover. After a rise it leaves the put to run out rather than sell it for a few pence. Roll mechanics are on the rolling page; the paths below are scenarios, not forecasts.
A. BP falls to 450p by Monday 2 November
BP reports on Friday 30 October and trades at 450p on Monday 2 November, 46 days before expiry and ten days before the ex-date. The December 500 put is worth 57.19p (model), delta −906: it now moves almost one for one with the shares. The convention fires: the plan sells the 500 put at 57.25p, £571.10 after commission, a gain of £387.20 on the £183.90 it cost, and buys the December 450 put at 18.75p (model 18.83p) for £188.90. It keeps £382.20 of cash and a new floor at 450p. The shares show −£800.00, unrealised.
Holding on would have kept the 500p floor: −£485.30 however far BP fell. The roll gives up £117.80 of that protection if BP keeps falling (the floor drops 50p, £500, cushioned by the £382.20 the roll kept) and gains £382.20 if BP recovers to 530p. Selling the put without replacing it banks the most and leaves the shares uncovered.
B. BP rallies to 560p by 2 November
The put is worth 3.00p. Sold, it would return £28.60 after commission, a realised loss of £155.30, and leave the holding uncovered for its last 46 days, including the ex-date. The plan keeps it. If BP stays above 500p the put lapses on 18 December and the loss is the whole £183.90, while the shares are up £300.00 at 560p. The salvage value is small because most of the premium was time value that the rally and the passing weeks have already used up.
C. BP drifts to 470p by expiry
On Friday 18 December the put is 30p in the money. Selling it at 30p brings £298.60, a gain of £114.70, and the holder keeps the shares, now showing an unrealised gain of £878.00 over the 380p pool. Exercising instead delivers the 1,000 shares at 500p. That is a sale of the shares on 18 December, with a gain of £992.70: £5,000 less the £3,822.00 pool, the £183.90 put and the £1.40 exercise commission. In pounds the two routes end the same afternoon in different places: one holder still owns BP with £114.70 realised; the other owns cash with £992.70 realised. ICE Clear Europe exercises in-the-money options automatically on expiry day under the contract’s settings, and brokers add their own expiry rules, so a holder who wants to keep the shares sells the put before trading ends at 16:30 (expiry, automatic exercise and pin risk).
Greeks: the cover as BP moves and the weeks pass
For a hedger the rows read as the price of insurance over time. With BP unchanged the put loses £69.70 of model value by 16 October, and a week before expiry it is worth £3.92, still losing £1.27 a day. That decay is the premium being used up as insurance, and it is why the cost table matters more than any one day’s value. The instant-move columns show the floor at work: a one-standard-deviation fall costs the shares £742.50, and the put’s gain of £384.63 halves the damage to −£357.87; a one-standard-deviation rise gains £711.53 after the put’s loss. Rho is −£5.60 per percentage point: a put is worth less when rates rise, because the strike it pays out is received later.
The 12 November ex-date and early exercise
A dividend pulls a put holder in the opposite direction from a call holder. The share is expected to fall by the dividend on the ex-date, which adds to the put’s value, so there is no reason to exercise a put before an ex-date. After it, an American put deep in the money can be worth only its intrinsic value: exercising collects 500p a share now rather than on 18 December, and once that interest is worth more than the protection the put still offers, early exercise costs nothing. The assignment page sets this out from the writer’s side.
At about 430p and below the put is worth exactly its intrinsic value, and the European value sits below it, because a European holder would have to wait 36 days for the 500p; simple interest on 500p for those 36 days is about 1.85p a share. For a holder of the shares, exercising early is a sale of the shares that day, with the tax result in the tax section; selling the put keeps the shares.
Put, collar, put spread, stop-loss or selling
Four other ways to handle the same 1,000 BP shares to 18 December, priced on the same chain. None is the right answer for every holder; each changes a different number.
A reader looking at the alternatives from the collar side will find the same comparison worked on a Rolls-Royce holding on the collar page, with phased selling across tax years added.
UK tax: hedging a gain without realising it
Buying a put is not a disposal of the shares, so the £1,478.00 gain on the 380p shares stays unrealised while the put runs. The put is taxed as a separate asset: sold, it is an ordinary disposal; lapsed, it is a loss equal to its cost (TCGA 1992 s144(4); CG55415), in the tax year it ends, under “Other property, assets and gains” on the SA108 (which boxes). Exercised, it is not disposed of: the shares are sold at the strike, dated on the exercise day (s28), with the put’s cost as an incidental cost of the sale (s144(3)(b); CG12314). That is the hedger’s trap: exercise realises the gain the put was bought to leave alone; selling the put does not. The reverse also holds: in branch B the put’s £183.90 loss can be set against other 2026/27 gains while the share gain stays unrealised. The tax examples page works a protective put exercised against a holding.
BP bought back within 30 days of an exercise is matched with that sale, not the 380p pool (the 30-day rule; the collar page works the case). A put protecting ISA shares sits in a taxable account, because options cannot go in an ISA: its gains are taxed and its losses allowable, while the ISA shares stay outside CGT (wrappers).
Without the shares: the put as a bearish position
Bought without shares, the same December 500 put is a bearish position whose loss cannot exceed £183.90. The table sets it beside a spread bet sold at 530p for £10 a point, the same exposure per penny, on the same Monday 2 November prices.
The bet makes more when BP falls, because it has no premium to recover, and its loss grows without limit as BP rises, with margin called along the way. The put’s worst case is fixed on day one, and its price for that is visible at 530p: a loss of £97.80 after 77 days with BP unchanged. The tax treatment differs as much as the payoff. The put is within capital gains tax, so a loss is allowable against other gains; a spread bet’s profits are not taxable and its losses are not allowable (CG56105); a CFD is within capital gains tax (CG56100). Spread bets and CFDs sold to retail clients also come with FCA margin close-out rules and negative-balance protection that do not apply to listed options (the three routes compared).
Exercising without shares. An exercised put delivers 1,000 shares. A holder who has none, whether by choice or because an in-the-money put was exercised automatically at expiry, is left short 1,000 BP shares: the broker has to borrow or buy them in, and the account carries a short position, with its costs and its unlimited risk, until it is closed. Buying the shares to close it costs 0.5% stamp duty on the purchase. Selling the put before trading ends avoids the delivery (from exercise to delivery).
Costs, the BP contract and the account
Open this worked example in the strategy builder (1,000 BP shares at 530p with the December 500 put at 18.25p), or the put on its own. The builder prices with Black-Scholes on the same dividend, so it solves each leg’s volatility from the 18.25p fill.
How these numbers are calculated
Every figure on this page is recomputed from these inputs by the site’s options engine each time the site is built.