Strota / Long Put — Bearish or Hedging Trade

Long Put — Bearish or Hedging Trade

Buy a put. Profit if the underlying falls below strike - premium. Max loss is the premium paid. The cleanest way to hedge a long portfolio.

Build a long put in the strategy builder →

Long put = buy one put. Bearish bet or portfolio hedge. Profit if the underlying falls below (strike - premium). Max loss is the premium paid.

Long puts have two distinct use cases — directional bearish bets, and protective hedges for long equity portfolios. The right strike and DTE depend on which use case applies.

Worked NIFTY example — directional

Today: NIFTY at 22,000. You expect 2% downside this week on poor results or macro news.

Buy 21,900 PE at ₹35. Cost = ₹35 × 25 = ₹875 per lot.

Breakeven = 21,900 - 35 = 21,865. If NIFTY closes at 21,700, intrinsic = 200, payoff = 200 × 25 - ₹875 = ₹4,125 per lot.

Worked example — portfolio hedge

You hold ₹10 lakh of large-cap stocks correlated with NIFTY. You want downside protection for the next month.

Buy 1 lot of a 21,000 PE (5% OTM) at ₹120. Cost = ₹120 × 25 = ₹3,000 per lot = 0.3% of portfolio.

If NIFTY drops 7%, your portfolio loses ~₹70,000, but the put pays roughly 22,000 - 21,000 - 120 = 880 × 25 = ₹22,000 — offsetting about a third of the loss.

Hedging isn't zero-cost insurance; it's tail protection. Expect to lose the premium most months and benefit only in sharp drawdowns.

Strike selection for hedging vs directional

Directional bearish: ATM to 1% OTM. Higher Delta, faster profit on the expected move.

Tail hedge: 4-6% OTM. Lower cost, only kicks in on sharp drops. Treat as portfolio insurance, not P&L generator.

What to do with this: If you're hedging a portfolio, calculate the OTM put cost as a percent of the portfolio you're protecting. A 0.3-0.5% monthly insurance cost is reasonable. Above 1% monthly, you're either paying for very-protective strikes or buying in a high-IV regime — wait or pick further OTM.

Common misreads

Buying puts after a 3% sell-off. IV already expanded — you're paying peak premium for the move that already happened.
Treating tail-hedge puts as failed trades when they expire worthless. That's the expected outcome — you're paying for insurance, not directional gain.
Hedging with weekly puts. Hedges should usually be monthly or quarterly — weeklies are too short-dated for portfolio protection.

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Key takeaways

Long put = buy one put. Bearish or hedge. Max loss = premium.
Directional puts: ATM to 1% OTM. Hedge puts: 4-6% OTM.
Hedging is tail protection, not P&L generator — expect to lose premium most months.
Best in low-IV environments where puts are cheap.

Long put — quick answers

Should I roll my hedge put forward or let it expire?

Roll it forward in calm markets (the protection is still relevant). Let it expire in extended bull runs where hedging is consistently losing money — the cost-benefit shifts unfavourably.

Is buying puts on individual stocks better than NIFTY puts for hedging?

Individual stock puts hedge stock-specific risk but cost more relative to coverage. NIFTY puts hedge broad market risk cheaply but won't catch idiosyncratic stock crashes. Most retail hedgers use NIFTY puts because the broad-market correlation is good enough.

Can I deduct put losses against capital gains?

Yes — options losses are treated as business or speculative income/loss depending on your filing classification. Consult a CA for the specifics, but the offset is generally available.

What's the difference between buying a put and shorting the stock?

Buying a put has defined risk (premium paid). Shorting has unlimited theoretical risk. Buying a put pays Theta as a cost. Shorting requires margin and may face short-squeeze risk. For most retail bearish positions, buying puts is the saner choice.

Does Black-Scholes work for Indian puts?

Yes, with dividend adjustments. Strota's Greeks calculator uses Black-Scholes with discrete-dividend adjustment for both index and stock puts.