Put Option

The intuition

A put is a price guarantee with an expiry date. If you own something and worry it may fall, a put lets you lock in a selling price today. If you own nothing and expect a fall, a put lets you profit from it with a known, limited outlay. The writer on the other side is paid to act as the insurer, collecting the premium and hoping the guarantee is never needed.

Because the guarantee only matters if the market falls, a put's value rises when the underlying drops, when volatility rises, and when there is more time for a drop to happen. It loses value as expiry approaches with the underlying sitting above the strike, which is the time decay that writers live on.

Payoff and formula

Buyer's profit at expiry = max(strike − settlement price, 0) − premium paid

Writer's profit at expiry = premium received − max(strike − settlement price, 0)

Break-even = strike − premium

Before expiry the premium is the sum of two parts: intrinsic value (strike minus spot, if positive) and time value (everything else, which decays to zero at expiry).

Worked example (illustrative numbers)

Suppose NIFTY is at 24,000 with ten days to the next Tuesday expiry, and the 24,000 put is trading at ₹150. One lot is 65 units, so one contract costs 150 × 65 = ₹9,750 of premium.

• Nifty settles at 23,500: the put is worth 500 points. Buyer's profit = (500 − 150) × 65 = ₹22,750. Writer loses the same.
• Nifty settles at 23,850: the put is worth 150 points, exactly the premium. Both sides break even before costs.
• Nifty settles at 24,300: the put expires worthless. Buyer loses the full ₹9,750; the writer keeps it.

Notice the asymmetry. The buyer's loss stops at ₹9,750 however high Nifty goes. The writer's loss keeps growing the further Nifty falls; at a settlement of 23,000 the writer is down (1,000 − 150) × 65 = ₹55,250. That open-ended exposure is why exchanges collect margin from writers and not from buyers.

Why it matters to an options trader

• Protection. A put under a portfolio converts an unknown drawdown into a known cost. Mutual funds, insurers and proprietary desks buy Nifty puts for this reason all year, which is why index put open interest never reads as "pure" bearishness.
• Defined-risk bearish exposure. Shorting futures carries margin calls and unlimited risk; a bought put caps the loss at the premium.
• Income from writing. Put writing at strikes a trader is comfortable owning the market at is one of the most common professional trades on NSE. The put OI "walls" below spot on any index chain are largely written puts, which is why they act as support.
• Building blocks. Spreads, straddles, collars and protective structures are all puts combined with calls or the underlying; understanding the single put is the prerequisite.

Common mistakes

• Expecting the put to track the index point for point. An out-of-the-money put moves a fraction of the index move (its delta); a 100-point drop may add only ₹30 to a far strike.
• Ignoring volatility. After a sharp fall, implied volatility often jumps and then subsides. A put bought at peak fear can lose value even while the index stays down.
• Holding to the last day for the "big move". Time value collapses in the final sessions. A put that needs the market to fall tomorrow is a very different bet from one with two weeks to run.
• Writing puts without a plan for assignment. On stock options, an in-the-money put at expiry means taking delivery of shares and paying for them in full.
• Confusing "right to sell" with "must sell". The buyer is never obliged to do anything; the obligation sits only with the writer.

Indian-market specifics

• All NSE and BSE options are European: exercise happens only at expiry, automatically, if the contract is in the money at settlement.
• Index puts (Nifty, Bank Nifty, FinNifty, Sensex) are cash-settled against the final settlement price. Stock options are physically settled: an in-the-money put at expiry delivers shares from the buyer to the writer.
• Lot sizes after the January 2026 revision: Nifty 65, Bank Nifty 30, FinNifty 60; Sensex 20 on BSE. Stock lot sizes vary and are reset periodically by NSE.
• Securities Transaction Tax from 1 April 2026: 0.15% of the premium on the sell side, and 0.15% of the intrinsic value when an option is exercised at expiry. Letting a small in-the-money put settle can therefore cost more in STT than closing it in the market.
• Writers post SPAN plus exposure margin, recalculated through the day; buyers pay the premium upfront and nothing more.

FAQ

What happens to a put option at expiry on NSE?

If it is in the money it settles automatically: index puts in cash, stock puts by delivery of shares. If it is out of the money it expires worthless and the buyer's loss is the premium.

What is the maximum loss when buying a put?

The premium paid plus costs. The writer's loss has no such cap; it grows as the underlying falls.

How is the break-even of a put calculated?

Strike minus premium. A 24,000 put bought for ₹150 breaks even at 23,850 at expiry.

Why do institutions buy index puts even in a rising market?

As insurance on large equity holdings. It is a cost of carrying the portfolio, not a market call, and it is why index put OI has a permanent floor.

Related terms

• Call Option, the mirror contract
• Intrinsic Value and Time Value, the two parts of a put's premium
• Put-Call Parity, how a put's price is tied to the call's
• Open Interest, how written puts show up on the chain