> ## Documentation Index
> Fetch the complete documentation index at: https://docs.defiloops.com/llms.txt
> Use this file to discover all available pages before exploring further.

# Pricing a hedge

> What protection would have cost and whether it paid — and why the skew is the largest number in the answer

**Tool:** `price_options`

For "should I hedge this" and "what does protection cost".

`price_options` takes a structure from
[list\_option\_structures](/tools/list-option-structures), a currency, a strike as
a multiple of spot and a tenor, then rolls it through recorded history against
Deribit's volatility index.

## What it answers

```
Protective put on BTC — strike 0.8× spot, 365d tenor, $10,000.
One put below spot. Insurance, not a trade — it costs money every roll and
only pays in a fall.

  over 2.0 years, 2 rolls, 0 of them paid more than they cost
  premiums paid   $16,197
  payoffs         $6,197
  total           -100.0%   against -48.3% for simply holding BTC
  worst drawdown  100.0%

  Volatility skew used: +1.1 points on top of the at-the-money index.
```

## The skew is a choice, and it moves everything

The skew is the number of volatility points added to the at-the-money index to
price strikes away from it. It is **not a measurement**. It is an assumption,
and it is the single largest lever on every figure returned — the same structure
priced at two plausible skews gives answers that differ by more than the
difference between hedging and not hedging.

Every answer states the skew it used. A result quoted without it is a number
with no error bar, presented as a fact.

## What the history actually says

**Buying protection has not worked.** Not at any strike, spend or tenor
measured. At-the-money insurance costs something like 30–40% a year against the
asset's own drift: the premium compounds every roll, and the payoff arrives only
in a fall large enough to clear what the previous rolls cost.

That is a finding, not a prejudice. It does not mean never — it means the case
has to rest on something other than expected return:

* a drawdown that would force a sale at the bottom
* a loan that would liquidate
* a cashflow that has to survive one specific quarter

<Note>
  An agent that prices a put without saying this has answered the question asked
  and not the one meant.
</Note>

## Read `won` next to the total

A result is a series of rolls — open, hold to expiry, settle, reopen. `won`
counts how many paid more than they cost. A respectable total can come from one
lucky roll in ten, and the two readings are very different bets.


## Related topics

- [What we hold](/data/streams.md)
- [Every tool](/tools/reference.md)