When markets become uncertain, one of the first questions traders ask is: What’s the cost of protection right now? Put options are often viewed as a form of insurance, but without a way to benchmark their cost, it can be difficult to know if you’re paying a fair price. That’s where Market Chameleon’s Risk Protection Statistics Tool comes in.
This tool allows you to chart out-of-the-money (OTM) put premiums in a consistent, standardized way so you can evaluate whether downside protection is expensive, cheap, or fairly priced compared to historical averages.
Raw dollar option premiums don’t tell the whole story. Option costs vary based on time to maturity, stock price levels, and strike distance. To make comparisons meaningful, the Market Chameleon tool standardizes three critical elements:
Constant Maturity – Premiums are normalized to fixed time frames (e.g., 30, 60, 90, or 120 days), similar to the methodology used in volatility indexes like the VIX.
Percentage Distance from the Money – Instead of looking at a fixed dollar strike, you can define OTM puts in terms of percentage distance below the current price (e.g., 1%, 5%, 10%). This ensures comparisons remain consistent across stocks with different price levels.
Premium as a Percentage of Spot Price – By converting the dollar premium into a percentage of the stock price, you gain a true sense of cost relative to the underlying.
With these adjustments, you get an apples-to-apples comparison that’s both intuitive and actionable.
The resulting chart shows current put premiums relative to their historical average, making it easy to see whether today’s protection costs are elevated or subdued. You can also view the variability over time, which highlights unusual spikes or periods when “insurance” was priced much higher or lower than normal.
This helps you answer critical questions, such as:
Am I overpaying for downside protection today?
How does the current market’s risk pricing compare to past conditions?
What insights can I gain about overall market sentiment?
By framing protection costs in historical context, you can use this tool to support smarter, more informed decision-making in your trading process.
You can try the Risk Protection Statistics Tool directly on Market Chameleon here:
?? Market Chameleon Risk Protection Statistics
Disclosure: This blog is for informational and educational purposes only. It does not constitute investment advice or a recommendation to buy or sell any security. Options trading involves significant risk and is not suitable for all investors. Please read the Characteristics and Risks of Standardized Options (ODD) and consult with a qualified financial professional before making any trading decisions.