Explanation

In a single-period binomial framework, when replicating a long position in a put option, the strategy involves:

1. Short selling the underlying stock (negative cash flow)
2. Investing in risk-free bonds (positive cash flow)

However, the net cash flow at time step 0 is typically negative because:

• The cost of establishing the replicating portfolio equals the theoretical value of the put option
• Since you're buying the put option (or replicating its payoff), you pay a premium upfront
• The cost of the replicating portfolio should equal the put option's theoretical value

In option replication, the initial cash flow is negative because you're effectively paying for the option position upfront. The replicating portfolio is constructed to match the option's payoff at expiration, but establishing this portfolio requires an initial investment.