DEFINITION of 'Average Price Put'
A type of option where the payoff depends on the difference between the strike price and the average price of the underlying asset. If the average price of the underlying asset over a specified time period exceeds the strike price of the average price put, the payoff to the option buyer is zero. Conversely, if the average price of the underlying asset is below the strike price of such a put, the payoff to the option buyer is positive and is the difference between the strike price and the average price. An average price put is considered an exotic option, since the payoff depends on the average price of the underlying over a period of time, as opposed to a straight put, the value of which depends on the price of the underlying asset at any point in time.
INVESTOPEDIA EXPLAINS 'Average Price Put'
Like all options, average price puts can be used for hedging or speculating, which depends on whether there is an exposure to the underlying asset. Buyers of average price puts may generally have a bearish opinion of the underlying asset or security.
For example, consider an oil and gas producer which holds the view that crude oil prices are set to decline and therefore desires to hedge its exposure. Assume that this producer wishes to hedge 100,000 barrels of crude oil production for one month. Further assume that crude oil is trading at $90 per barrel, and an average price put with a strike price of $90 expiring in one month can be purchased for $2.
After one month, when the option is about to expire, if the average price of crude oil is $85, the oil producer's gain would be $300,000 (i.e. the difference of $5 between the strike price and the average price less the option premium paid X 100,000 barrels). Conversely, if the average price of crude oil over the onemonth period is $93, the option would expire unexercised. In this case, the producer's loss on the hedging transaction would be equal to the cost of the option premium, or $200,000.

Short Selling
The sale of a security that is not owned by the seller, or that ... 
Asian Option
An option whose payoff depends on the average price of the underlying ... 
Exotic Option
An option that differs from common American or European options ... 
Average Price Call
A type of option where the payoff is either zero or the amount ... 
Strike Price
The price at which a specific derivative contract can be exercised. ... 
Multibank Holding Company
A company that owns or controls two or more banks. Mutlibank ...

Options & Futures
Introduction To Put Writing

Options & Futures
Options Basics Tutorial

Options & Futures
OutOfTheMoney Put Time Spreads

Options & Futures
Use Married Puts To Protect Your Portfolio