A put option that pays the holder the amount of a decline in a position or portfolio over the option‘s life, often less a specific deductible. The payout can be made contingent on a market crash or similar negative event. Crash option resets its holder to the historical highest level of the underlying asset price during the lifetime of the contract at the time of the market crash. However, if the crash does not occur up to the time of the maturity of the contract, the option expires worthless.

The option will end up in the money if a sufficiently large drop actually occurs. Sometimes, it is possible to negotiate a contract which would set the capital of its holder to a different level than the running highest level at the time of the crash, for example, to the running average, or to some intermediate point between the running highest point and the crash value.