The cost of a protective put is driven by four factors: implied volatility of the stock, how far below the current price you set the strike, how long you want coverage, and whether an earnings event is coming.
As an illustrative range: a one-year put at 90% of the current price typically costs 3% to 12% of position value, varying widely by the stock's volatility.
Buying protection before an earnings announcement costs more because implied volatility is elevated. Buying several weeks ahead, when IV is lower, is usually more efficient.
The BallastX Hedging Cost Index shows live benchmarks for equity-comp stocks. The Stress Test shows position-specific scenarios.
Why put cost matters for RSU holders
RSUs vest on a schedule and land as ordinary income. After vesting, many holders find themselves with a large taxable gain accumulating in a single stock they cannot easily sell without a painful tax event. A protective put lets them set a floor under that position without triggering a sale.
The honest question is whether the protection is worth its cost. Understanding what drives put pricing helps you make that call and shop for the most efficient coverage.
The four main cost drivers
1. Implied volatility
Implied volatility (IV) is the options market's expectation of how much a stock will move over a given period. It is the single biggest driver of option prices.
A stock with 20% annualized IV is expected to move relatively little. A stock with 60% IV is expected to swing much more. Put sellers demand a larger premium to take on that risk, so high-IV stocks cost significantly more to hedge.
As an illustrative example, consider a one-year put struck 10% below the current price:
| Implied Volatility | Illustrative Put Cost (% of notional) | Typical stock type |
|---|---|---|
| 20% | ~1.5% to 3% | Utilities, consumer staples, large-cap banks |
| 35% | ~3% to 6% | Large-cap tech, established SaaS, S&P 500 names |
| 55% | ~6% to 11% | High-growth tech, recent IPOs, biotech |
| 75%+ | ~11% to 20%+ | Early-stage or highly speculative names |
Illustrative only. Actual premiums depend on live market conditions, specific strike, expiry, skew, and other factors. Not a guarantee of any future price.
2. Strike distance (moneyness)
An at-the-money put, struck right at the current price, offers immediate protection from any decline. It costs the most because it pays off right away on any downward move.
An out-of-the-money put, struck 10% or 20% below the current price, only pays off after the stock falls past that threshold. It costs less, but you bear the first layer of loss yourself.
The trade-off is deductible vs. full coverage. A 15% out-of-the-money put is like a high-deductible insurance policy. You pay less, but you absorb the first 15% decline.
3. Time to expiration (tenor)
Options decay over time; a phenomenon called theta. Longer-dated puts cost more in absolute terms because they provide coverage over more time and have more opportunities to become valuable.
However, the cost per day of coverage often falls as you go further out. A six-month put may cost somewhat less than two consecutive three-month puts covering the same period, because options markets reflect lower per-unit time value on longer-dated contracts for most stable stocks.
For RSU holders who want persistent coverage, buying LEAPS (long-dated puts, one to three years out) and holding them is often more cost-efficient on a per-month basis than rolling short-dated puts repeatedly.
4. Earnings announcements and event risk
Implied volatility almost always rises in the days leading up to an earnings announcement. The market is pricing in the uncertainty of the event. As a result, options bought right before earnings are more expensive than those bought weeks earlier.
After earnings release, whether the stock moves or not, IV typically drops sharply. This is called IV crush. If you bought a put just before earnings and the stock holds flat, the put may lose value even though your thesis was not wrong; the premium deflation from IV crush eroded it.
See the full article on hedging before earnings for more on timing and IV dynamics.
Total annual cost: a framework for RSU holders
A useful mental model: put cost as an annualized percentage of your position is effectively an insurance premium rate. You can compare it to other costs of protection (exchange fund fees, collar costs, advisor fees) on the same basis.
An illustrative annual cost range for a well-structured put on a large-cap tech RSU position might be 4% to 8% per year of the notional position value, depending on volatility and strike choice. For a position with a 30% embedded gain, that cost might represent the equivalent of selling 5% of the position per year in exchange for knowing the floor.
Whether that trade is worth it depends on your tax rate, your conviction in the stock, and the cost of the alternative: absorbing a potential 40% to 60% drawdown unhedged.
How to see live costs for your position
The BallastX Hedging Cost Index tracks annualized put-cost benchmarks across common equity-compensation stocks, updated regularly. It shows how costs move with IV and gives you context for whether today is cheap or expensive to buy protection.
The BallastX Stress Test lets you enter your specific position details, choose a drawdown scenario, and see the estimated cost of hedging alongside the estimated loss of going unhedged.
What you can do to reduce hedging cost
- Buy further out of the money. A 15% or 20% OTM put costs less than a 5% OTM put. You bear the first layer of loss, but the put provides catastrophic coverage.
- Buy longer tenor when IV is low. LEAPS bought during low-volatility periods are among the most cost-efficient forms of protection.
- Avoid buying right before earnings. If you do not need earnings-specific coverage, buy protection several weeks before or after the announcement when IV is lower.
- Consider a collar. Selling a covered call against your put offsets the premium, at the cost of capping your upside. See the VPF vs collar vs put comparison for details.
Frequently asked questions
It depends heavily on the stock's implied volatility, your chosen strike, and how long you want coverage. As an illustrative range: a one-year put struck 10% below the current price on a stock with moderate volatility (30%) might cost roughly 3% to 5% of the position's notional value. A high-volatility tech stock at 60% IV might cost 7% to 12% for similar coverage. These are illustrative only; actual premiums require live pricing.
Options are priced largely based on implied volatility, which reflects the market's expectation of future price movement. High-volatility stocks like growth tech names have higher implied volatility, which means more potential movement in the option's favor, which means sellers demand a larger premium. The same 10% out-of-the-money put costs more on a 60-IV stock than a 20-IV stock.
Yes, almost always. Implied volatility typically rises into an earnings announcement as traders price in the event risk. Buying protection in the week before earnings means you are paying inflated premiums. After earnings release, IV typically collapses, an effect known as IV crush. Buying protection several weeks before earnings, when IV is lower, is often more cost-efficient.
The closer your strike is to the current stock price (at-the-money), the more expensive the put. A put struck 5% below the current price costs more than one struck 20% below. The trade-off is coverage: an at-the-money put starts paying out immediately on any decline, while a far out-of-the-money put only pays out after the stock falls past a large threshold.
Yes. Longer-dated options cost more in absolute terms because there is more time for the stock to move against you. However, on a per-month basis, longer-dated options are often cheaper per unit of time than short-dated ones, a feature called time-value scaling. Buying a six-month put and rolling it twice may cost more in total than buying one 12-month put.
The BallastX Hedging Cost Index tracks current annualized put-cost benchmarks across common equity-compensation stocks. The BallastX Stress Test lets you model position-specific drawdown scenarios and estimated hedge costs with your actual position details.