Short Put

The intuition

Writing a put is selling insurance against a fall. The buyer pays you to take the risk that the index drops below the strike; you keep the premium if it does not. The trade is profitable far more often than not, because most weeks the market does not fall through the strike the writer picked, and the premium decays to zero in the writer's favour. The price of that steady income is the week when it does fall through, and the loss then is not capped by anything but the index going to zero.

Because index puts on NSE are European and cash-settled, the writer's exposure is purely the option's price until expiry, then a cash settlement of intrinsic value. There is no early assignment and nothing is delivered. Stock puts are different: a written stock put that finishes in the money delivers shares to the writer at the strike.

Payoff and formula

Profit at expiry = premium received − max(strike − settlement price, 0)

Break-even = strike − premium

Maximum profit = premium × lot size; maximum loss = (strike − premium) × lot size, if the underlying goes to zero

The position's Greeks are the reverse of a long put: positive delta (it gains as the market rises), negative gamma, positive theta (it earns time decay) and negative vega (it loses if implied volatility rises).

Worked example (illustrative numbers)

Suppose NIFTY is at 24,000 with seven days to the Tuesday expiry and a trader writes one lot (65 units) of the 23,800 put for ₹90, receiving ₹5,850. The broker blocks SPAN plus exposure margin, say ₹1,20,000 (the live figure comes from the broker's calculator). Break-even at expiry is 23,710.

Nifty at expiry	Put worth	P&L per lot
24,300	0	+₹5,850 (maximum)
23,800	0	+₹5,850
23,710	90	0 (break-even)
23,500	300	−₹13,650
23,000	800	−₹46,150

The asymmetry is the whole story: a 2% fall costs more than two weeks of the premium earned. Before expiry the picture is less stark but moves fast. If Nifty drops 300 points on Thursday with implied volatility jumping to 18%, the 23,800 put could trade near ₹240: a mark-to-market loss of about ₹9,750 per lot while the option is still out of the money, and a margin requirement that has risen with it.

Why it matters to an options trader

• It is the dominant professional trade on NSE index options. Institutional and proprietary desks write puts against levels they expect to hold, which is why index PCR runs high and why put open interest below the market reads as support.
• It earns theta. The writer is paid for time passing; a quiet week is a profitable week.
• It is a way to buy lower. On stocks, writing a put at the price you would be happy to own the shares is a paid limit order: either you keep the premium or you are assigned at the strike.
• It is a building block. Short put plus long lower put is a bull put spread with capped loss and far less margin; short put plus short call is a strangle.

Common mistakes

• Sizing by premium. ₹5,850 of income on ₹1,20,000 of margin is a 5% return for a week of unlimited downside; sizing should start from the loss on a 3% fall, not the premium.
• Writing far strikes for "safe" small premiums. The premium is small because the risk is rare, not absent; the loss when it arrives dwarfs years of tiny credits.
• Ignoring volatility. A short put loses on an IV spike even if the index is flat; writing into a low-IV market gives the least premium for the same risk.
• Holding stock puts into expiry unprepared. Assignment delivers shares and requires the full strike value in cash.
• Under-funding margin. The requirement rises as the trade goes wrong; a buffer above the initial figure is part of the position.

Indian-market specifics

• Index puts (Nifty, Bank Nifty, FinNifty, Sensex) are European and cash-settled: the writer pays intrinsic value at expiry, never earlier. Stock puts are physically settled: assignment delivers shares at the strike.
• Expiry days: Nifty Tuesday (weekly and monthly); Bank Nifty, FinNifty, Midcap Select and stocks on the last Tuesday; Sensex Thursday on BSE.
• Lot sizes after the January 2026 revision: Nifty 65, Bank Nifty 30, FinNifty 60, Sensex 20. Margin is SPAN plus exposure, collected upfront under SEBI's peak-margin rules.
• Securities Transaction Tax: 0.15% of premium on the sell side when the put is written (from 1 April 2026); if the put settles in the money, the buyer's exercise attracts STT, not the writer's assignment.

FAQ

What is the maximum loss on a short put?

Strike minus premium, per unit, if the underlying goes to zero; in practice a large multiple of the premium on a sharp fall.

How much margin does a short put need?

SPAN plus exposure, upfront, rising as the index falls or volatility rises; a spread cuts it sharply.

Why does put writing create support on the option chain?

Writers pick strikes they expect to hold and defend them; the resulting put OI acts as a floor until it breaks.

Is a short put the same as a cash-secured put?

A cash-secured put holds the full strike in cash against assignment; relevant to stock puts on NSE, not index puts.

Related terms

• Put Option, the instrument
• Margin, what the writer must post
• Assignment, what happens if the strike is breached at expiry
• Theta, the writer's income