Buying a put option
Profit from a fall — or insure what you own. The put is a call viewed in a mirror.
A put is insurance
Think about car insurance. You pay a yearly premium. If nothing goes wrong, the money is gone — and you're fine with that. If the car is badly damaged, the insurer pays you for the loss.
A put option works the same way for prices:
- You pay a premium.
- You get the right to sell at the strike price.
- If the price crashes, that right becomes valuable — you can "sell" at the higher strike.
- If the price doesn't fall, you lose only the premium, like an unused insurance policy.
The trade
NIFTY is at 22,400 and you think it will fall this week — or you hold a portfolio of stocks and want protection. You buy one lot of the NIFTY 22400 PE at ₹145.
Value at expiry
A put is worth how far NIFTY finishes below the strike:
Put value at expiry = max(0, strike − NIFTY)
| NIFTY at expiry | Put worth | Minus premium | P&L for 1 lot (× 65) |
|---|---|---|---|
| 22,800 | 0 | −145 | −₹9,425 |
| 22,400 | 0 | −145 | −₹9,425 |
| 22,300 | 100 | −45 | −₹2,925 |
| 22,255 | 145 | 0 | ₹0 (breakeven) |
| 22,100 | 300 | +155 | +₹10,075 |
| 21,800 | 600 | +455 | +₹29,575 |
If NIFTY ends at 22,400, you lose ₹9,425.
Put the call graph and the put graph next to each other in your mind: they're mirror images. The call's ramp climbs to the right (rising market), the put's ramp climbs to the left (falling market). Both have a flat floor equal to the premium.
Using a put as insurance
Say you hold stocks that move closely with NIFTY, worth about ₹14.56 lakh (one lot's contract value: 22,400 × 65). A sudden 5% fall would cost you around ₹72,800.
Without a put
- NIFTY falls 5% to 21,280.
- Portfolio loses ≈ ₹72,800.
- Nothing offsets it.
With one 22400 PE bought at ₹145
- Put is worth 22,400 − 21,280 = 1,120 points.
- Put profit = (1,120 − 145) × 65 = ₹63,375.
- Net loss shrinks to ≈ ₹9,425 — about the premium.
That's the whole idea of hedging: pay a known, small cost to remove an unknown, large one.
Quick check
You hold the 22400 PE bought at ₹145. NIFTY expires at 22,350. Profit or loss for 1 lot?