Sharekhan Blog

What is Put Option in Share Market?

  • Feb 22, 2024

A contract governs the authority to sell securities. While stocks are frequently used as securities, other options include currencies and futures on commodities.

Since it is anticipated that you will strike when the stock price drops to that level or below, the price is known as the "strike price." It's only for sale until a specific date. That date is called the expiration date since it is when your decision expires.

If, prior to the expiration date, you sell your shares at the strike price, you have exercised your nifty put option under an American option.

How a Put Option Works?

Put options tend to gain value when the price of the underlying stock falls, making them valuable for hedging or betting on a downturn. A popular strategy involving put options is the protective put, which acts like insurance for investments. In this strategy, investors buy options to limit potential losses on a stock they own.

Also Read: Hedging Option Strategies

If the option is exercised, the investor sells the stock at the put's strike price. If the investor doesn't own the stock and exercises the put option, it results in a short position on the stock. This strategy helps manage risk by setting a maximum loss threshold for investors.

Benefits of Put Options

1.    Earning Potential in Different Market Situations

The underlying asset or stock can experience any direction. Depending on social events, politics, and the economy, the value may change significantly. For an investor to benefit from a call option, the option must be bought below the strike price.

Put option buyers, on the other hand, may benefit if the asset's price remains unchanged or even declines. Put option traders profit more than call option traders.

2.    Implied Volatility Advantage

Options implied volatility informs you about the cost. An option contract price often rises when implied volatility is high. A put option in share market trader wants to sell when the price is high and buy when it's low. This is conditioned to when the implied volatility is high but declines significantly.

It has long been a known fact that the implied volatility goes down with time; hence, traders who buy put options would benefit over time since the market’s natural condition is to their advantage.

3.    Time Decay's Advantage

In the world of derivatives trading, timing is crucial for profit, and sellers have an advantage with time-bound options. An option contract's value decreases as it approaches its expiration date.

Put option sellers are, therefore, more likely to benefit from time decay if they sell their options while they are still valuable. Time decay, however, does not advantage those who own call options.

When to Sell a Put Option?

When you sell a put option in share market, you pledge to purchase stock at a predetermined price.

Sellers lose money if the stock price drops. This is the situation because they can only sell the stock at a lesser price, but they buy it at the strike price. They benefit if the stock price increases since the buyer will not exercise the option. The put sellers retain the fee.

Put sellers write a lot of options on companies they think will increase in value in order to keep their company afloat. They think that the fees they get will make up for the losses they incur when stock values drop.

Difference Between Put Option and Call Option


Put Option

Call Option


Gives the holder the right to sell

Gives the holder the right to buy


Typically associated with a decline in

 the price of the underlying asset

Typically associated with a rise in

the price of the underlying asset


Profits when the price of the underlying asset decreases below the strike price

Profits when the price of the underlying asset increases above the strike price


Limited to the premium paid for the option

Limited to the premium paid for the option

Breakeven Point

Strike price minus premium

Strike price plus premium


Limited risk due to the defined loss

Limited risk due to the premium paid

Time Decay

May benefit from time decay as expiration approaches

May suffer from time decay as expiration approaches

The Bottom Line

Put options are a valuable tool for investors looking to manage risk and speculate on the market. They allow you to benefit from potential price declines while limiting your risk and providing insurance against losses. However, like any investment, it's important to do your research and fully understand the risks and benefits involved before making any decisions.

Team Sharekhan
by Team Sharekhan

We care that your succeed

Leaving no stone unturned in creating a one-stop shop for the latest from the world of Trading and Investments in our effort to Make the Markets work for YOU!

Recent posts

Reasons Behind Investors Losing Money in Futures & Options

17 May 2024

Sharekhan’s Survey  unveils reasons behind investors losing money in Futures & Options Trading—an issue flagged by SEBI

Read More

India's Top Retail Broker & Analysts Awards

16 May 2024

A BIG thank you to our customers for Sharekhan being recognised as India’s No. 1 Retail Broker & our Research Analysts also winning top ranks.

Read More

What Is Large Cap Fund?

2 May 2024

Large-cap companies are well-established entities with a respectable vintage and reputation.

Read More

Intraday vs Delivery Trading: Which One is Right for you?

30 Apr 2024

Trading platforms in India offer retail investors easy access to equity markets; an oft-asked question is the suitability between utilising delivery-based investing versus higher velocity intraday trading.

Read More

Stock Market Timings in India

30 Apr 2024

India's stock markets play an important role in the growth of its economy and wealth creation for investors. But to actively participate in equity trading avenues, having a sound understanding of exact stock market timings and hours is key for tra

Read More