Derivatives
What is Put Option?
A put option gives the buyer the right to sell an asset at a predetermined price before expiry, used for bearish bets, portfolio insurance, and hedging downside risk.
Formula
Put Payoff = max(0, Strike Price - Stock Price at Expiry) - Premium Paid
How to Interpret
Buying puts is like buying insurance for your portfolio. The premium is the cost of protection. Protective puts on your holdings cap your maximum loss.
Typical Ranges
Put premiums rise with volatility, track the CBOE VIX in US markets, India VIX in India. Buying puts when VIX is low (<15 in US, <12 in India) is cheaper protection.