Put Option Buying

Definition ∞ Put option buying involves purchasing a contract that grants the buyer the right, but not the obligation, to sell an underlying asset at a specified price before a certain date. The buyer pays a premium for this right, typically when they anticipate the underlying asset’s price will decline. This strategy is commonly used for hedging against potential losses in an asset or for speculating on a downward price movement. It provides downside protection.
Context ∞ In crypto markets, put option buying is a common strategy for investors seeking to protect their digital asset holdings against price drops or to capitalize on bearish market trends. News often reports on increased put option activity as an indicator of growing market uncertainty or a potential shift in investor sentiment. A critical future development involves the expansion of regulated and decentralized platforms offering a wider array of put option products, enhancing risk management tools for crypto participants.