This is a great question — buying a deep-in-the-money (ITM) put as a long-term hedge creates a structural cost that you need to quantify. Let me break down the mechanics and then we can walk through a concrete example.

The Drag Components on a Long-Term ITM Put

1. Time Decay (Theta)

An ITM put has less theta decay than an OTM put, but it still burns value daily. The deeper ITM, the more the option behaves like the underlying (delta near -1), so time decay is slower — but over months, it compounds.

2. Volatility Premium (Vega)

You pay for implied volatility (IV) above realized. If the market rallies (vol typically falls), you lose on both delta and vega — the put loses intrinsic value AND the vol component deflates. This is often the hidden killer in long-vol hedges.

3. Foregone Upside / Financing Cost

An ITM put = short stock + cash. You're paying an embedded financing rate (roughly risk-free + borrow cost), which can be 5-6% annualized in today's rate environment. This is priced into the put premium.

4. Dividend Impact

Puts don't receive dividends. If the stock pays dividends, the put's price already discounts them, but you're effectively losing the dividend yield vs. owning the stock outright.

Rough Annual Drag Estimate

For a European index ETF or large-cap European stock, you're probably in the 7-9% annual drag range on the notional hedged amount.

Let me pull up a real example to make this concrete. What ticker are you looking to hedge — a specific European stock or an index (Euro Stoxx 50, DAX, etc.)? And what's your time horizon — 6 months, 12 months, longer?