🎯 What is Put Option? (Simple Definition)
A Put option gives you the right (but not obligation) to sell a stock or index at a fixed price (called strike price) before a specific date (called expiry date).
Think of it like insurance for your car. You pay a premium to protect your car's value. If your car gets damaged (stock price falls), insurance pays you. If nothing happens (price stays up), you lose only the premium. Put options work the same way - they protect you when prices fall.
Key Point: With Put options, you profit when the stock/index price falls below the strike price. Your maximum loss is limited to the premium you paid.
⚙️ How Put Options Work in India
In India, Put options are traded on NSE and BSE for stocks and indices. Put options are the bearish counterpart to Call options. Here's how they work:
Key Terms You Need to Know:
- ✓Strike Price: The fixed price at which you can sell the stock/index. For example, Nifty 22,000 Put means you can sell Nifty at ₹22,000.
- ✓Premium: The price you pay to buy the Put option. This is your total investment and maximum loss.
- ✓Expiry Date: The last Thursday of every month when your option expires.
- ✓Lot Size: Nifty lot size is 50 units, Bank Nifty is 15 units.
📉 When Put Options Make Profit:
Put options make profit when the stock/index price goes BELOW the strike price before expiry.
The lower the price goes below strike, the more profit you make. Maximum loss is limited to premium paid - this is why Put options are called "limited risk, unlimited profit" instruments (on the downside).
💡 Real Example: Nifty Put Option Trade
Scenario: You Buy Nifty 22,000 Put Option
What Happens at Expiry? (3 Scenarios)
Profit Calculation:
Profit per unit = ₹22,000 - ₹21,500 = ₹500
Total Profit = ₹500 × 50 units = ₹25,000
Net Profit = ₹25,000 - ₹6,000 (premium) = ₹19,000
You made 317% profit! 🎉
Profit Calculation:
Profit per unit = ₹22,000 - ₹21,900 = ₹100
Total Profit = ₹100 × 50 units = ₹5,000
Net Profit = ₹5,000 - ₹6,000 (premium) = -₹1,000
Small loss, but risk was limited
Loss Calculation:
Since Nifty is above strike price, your Put option expires worthless.
Total Loss = ₹6,000 (the premium you paid)
Maximum loss is limited to premium
🎯 When Should You Buy Put Options?
✅ Best Times to Buy Puts:
- • You expect the stock/index to fall significantly
- • Strong bearish trend in the market
- • Negative news or earnings expected
- • Resistance level holding strong
- • Market showing weakness
- • Breakdown from support levels
- • Bearish chart patterns forming
❌ Avoid Buying Puts When:
- • Market is in strong uptrend
- • High volatility (expensive premiums)
- • Support levels are strong
- • Near expiry (time decay)
- • Bullish indicators present
- • No clear bearish signal
💰 Put Option Profit & Loss Calculation
Formula for Put Option Profit:
Profit = (Strike Price - Spot Price) × Lot Size - Premium Paid
Maximum Profit: Limited by how low price can go (practically, up to strike price)
Maximum Loss: Limited to premium paid
Break-even Point: Strike Price - Premium per unit
Example: If strike is ₹22,000 and premium is ₹120, break-even = ₹21,880
⚠️ Common Put Option Mistakes to Avoid
1. Buying Puts Too Close to Expiry
Time decay destroys Put option value fast. Always buy with at least 7-15 days to expiry.
2. Buying Puts in Strong Uptrend
Don't fight the trend. Wait for bearish confirmation before buying Puts.
3. Not Using Puts as Protection
Puts can protect your portfolio. Consider buying Puts when you hold stocks and expect correction.
❓ Frequently Asked Questions About Put Options
What is the difference between Call and Put option?
Call option = Right to BUY (bullish, profits when price rises). Put option = Right to SELL (bearish, profits when price falls). Read complete comparison.
When should I buy Put options?
Buy Put options when you expect the market to fall. They're perfect for bearish markets, protecting portfolios, or hedging against downside risk.
Can I lose more than premium paid for Put option?
No! Maximum loss is limited to premium paid. This is the safety of buying Put options - limited risk, unlimited profit potential (on downside).
What is protective Put strategy?
Buying Put options to protect your stock portfolio from losses. If stocks fall, Put options profit and offset your losses. It's like insurance for your investments.
Ready to Practice Put Options Risk-Free?
Start paper trading Put options on Zerroday with real Nifty & Bank Nifty data. Get AI-powered feedback and master bearish strategies before risking real money.
📚 Related Beginner Guides
What is Call Option?
Learn about Call options - the bullish counterpart to Put options
Call vs Put Options
Complete comparison between Call and Put options
Options Trading Basics
Complete beginner guide covering all options fundamentals
Strike Price Explained
Learn how to choose the best strike price for your trades