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Options Hedge Cost Calculator

Work out options hedge cost instantly with clear inputs, formula shown and shareable results.

About Options Hedge Cost Calculator

An option hedge caps downside while leaving upside intact, at the cost of a premium. Pricing an out-of-the-money option shows the trade directly: the further out the strike, the cheaper the premium and the larger the unprotected first loss.

Formula

Option hedge premium

Premium from Black-Scholes on a strike set above spot by the chosen distance

Worked example

With the default values below, Options Hedge Cost Calculator returns Option Premium To Hedge The Exposure of $765,511.43. Change any input above and every figure here is recalculated in your browser.

Inputs used

Exposure To Hedgeminimum 0
50,000,000
Implied Volatilityaccepts 1–100 %
11 %
Days To Expiryaccepts 1–730
90
Strike Distance Out Of The Moneyaccepts 0–25 %
3 %

Results

Option Premium To Hedge The Exposure
$765,511.43
Premium As Share Of Exposure
1.5310%
Annualised Cost Of Rolling The Hedge
6.2091%
Protection Begins At This Percentage Of Spot
103.00%

Step by step

  1. 1Values used
  2. 2Option hedge premium
  3. 3Option Premium To Hedge The Exposure= 765,511.43
  4. 4Premium As Share Of Exposure= 1.5310
  5. 5Annualised Cost Of Rolling The Hedge= 6.2091
  6. 6Protection Begins At This Percentage Of Spot= 103.00

Assumptions and limits

  • The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
  • In particular, this calculator does not take inflation, tax, fees or charges or compounding frequency into account.
  • Figures are rounded for display to 4 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
  • Figures are estimates based on the inputs given. Bank charges, regulatory minima and market rates change and differ between institutions and jurisdictions. This is not financial advice — confirm with your bank or treasury policy.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Figures are estimates based on the inputs given. Bank charges, regulatory minima and market rates change and differ between institutions and jurisdictions. This is not financial advice — confirm with your bank or treasury policy.

Frequently Asked Questions

Why is an option dearer than a forward?

A forward costs nothing upfront but removes upside. The premium buys optionality, which has real value.

How is the cost reduced?

Move the strike further out, shorten the tenor, or sell an offsetting option to build a collar.

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