Put Option
A put option gives the buyer the right to dispose of the underlying asset at the strike price before or on expiry, obligating the seller to accept it. Nifty put options are widely used by institutional participants on NSE to hedge long equity portfolios.
The buyer of a put option benefits when the underlying falls below the strike price. If a participant held a Nifty 18,000 put and the index settled at 17,700, the intrinsic value at expiry was ₹300 per unit. After deducting the premium paid, the net profit reflected the degree to which the underlying moved in favour of the position.
Put options are frequently employed as portfolio insurance. An investor holding a diversified large-cap portfolio may purchase Nifty puts to limit downside during earnings season, budget announcements, or global macro events. The cost of this protection is the premium, and if the market does not decline as anticipated, the premium is lost — similar in principle to an insurance premium paid for a policy that was not claimed.
Put writers (sellers) collect the premium and retain it fully if the underlying closes above the strike at expiry. The maximum risk for a put writer is the strike price minus the premium received, as the underlying can theoretically fall to zero. In practice, put writing on Nifty and Bank Nifty was a common institutional and HNI strategy, particularly through weekly expiries, because the majority of options historically expired worthless.
A common misconception is that put options are exclusively bearish instruments. While a standalone long put reflects a bearish or protective view, puts are integral components of neutral and even mildly bullish strategies. An iron condor involves selling an out-of-the-money put as one of its four legs, and a cash-secured put is a strategy where the writer intends to potentially acquire the underlying at a lower effective price.
Put-call parity is a fundamental relationship that links the prices of a call and a put with the same strike and expiry to the current price of the underlying and the risk-free rate. Arbitrage desks monitored this relationship continuously on NSE, and any significant deviation was rapidly corrected. Understanding put-call parity helps demystify why certain options appear mispriced and why such apparent mispricings rarely persist in a liquid market.