Put Option

A put option is a derivatives contract that grants the buyer the right — but not the obligation — to sell a specified quantity of the underlying asset at a predetermined Strike Price on or before the expiry date. The buyer pays a Premium for this right, while the seller (writer) receives the premium and takes on the obligation to buy if the option is exercised.

Put options increase in value when the price of the underlying asset falls. If you buy a Nifty 22000 put option and Nifty drops to 21500, your put option is now "in the money" by 500 points. Traders buy puts as a bearish bet or as insurance (hedging) for their long equity positions. Portfolio managers often buy index puts to protect against market crashes — this strategy is known as a protective put.

On NSE, put options are available on major indices (Nifty 50, Bank Nifty, Finnifty) and individual stocks in the F&O segment. Index options are European-style (exercised only at expiry) while stock options are also European-style in India. Settlement is cash-settled — no physical delivery of the index, though stock options involve physical delivery.

The maximum loss for a put buyer is limited to the premium paid. If Nifty stays above 22000, the 22000 put expires worthless and you lose only the premium. For the put seller (writer), the risk is theoretically substantial — if the underlying crashes, the writer faces large losses. This asymmetric risk profile is why option writing requires higher margins, enforced by NSE's SPAN margin system.

Common put strategies in Indian markets include buying puts for directional bearish trades, selling puts to collect premium income in range-bound markets (the short put strategy), and combining puts with other options in spreads like the bear put spread or protective put to manage risk and cost.