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 one-month 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.
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