What you will learn in this lesson
- Walk through the exact practical steps to buy a Put option on a broker platform
- Understand the small but important differences from buying a Call (Lesson 18)
- Learn how to set up a Put purchase specifically for hedging an existing holding
- Understand what to monitor after buying a Put
- Build a personal checklist for placing this trade confidently
Buying a Put option follows nearly the identical practical process as buying a Call (Lesson 18) - this lesson walks through it quickly, while highlighting the specific considerations that come up when a Put is being used for hedging rather than pure speculation.
The Practical Steps (Same Core Process as Buying a Call)
- Select the underlying and expiry - same as Lesson 18.
- Select the strike price (Put/PE side) - based on your moneyness preference (Lesson 16) and your specific goal (speculation or hedging).
- Check premium, liquidity, and total cost - Premium × Lot Size, plus charges, same checklist as Lesson 18.
- Choose your order type and place the order - market or limit, same considerations as before.
- Confirm and monitor - note your breakeven point (Lesson 20) and watch the position.
- Decide how to exit - sell before expiry, or let it settle.
If you’ve internalized Lesson 18’s process, this entire list should feel immediately familiar - the mechanics genuinely don’t change between Calls and Puts.
What’s Different: Strike Selection for Hedging
When buying a Put specifically to hedge an existing stock holding (rather than pure speculation), strike selection involves an extra consideration:
| Strike Choice | Protection Level | Premium Cost |
|---|---|---|
| Closer to current price (near ATM) | More complete protection, kicks in sooner | Higher |
| Further OTM (below current price) | Only protects against larger declines | Lower |
There’s no universally “correct” choice - it depends on how much protection you want, and how much premium cost you’re willing to accept for that protection, similar to choosing a higher or lower deductible on a real insurance policy.
What’s Different: Matching Expiry to Your Actual Risk Period
For hedging, explicitly ask: what period am I actually worried about? If you’re hedging against a specific known event (like quarterly results in two weeks), choose an expiry that comfortably covers that period - buying protection that expires before the risk event defeats the purpose entirely.
What’s Different: Sizing the Hedge Correctly
Because Options trade in fixed lot sizes, your hedge may not align perfectly with your share count:
Number of Put Lots Needed ≈ Shares Owned ÷ Lot SizeIf you own 250 shares and the lot size is 100, you can’t buy exactly 2.5 lots - you’d choose 2 lots (partial protection) or 3 lots (slightly more than full protection), and should explicitly understand which one you’re doing and why.
Real-Life Example: Hedging a Specific Holding
Suppose you own 200 shares of a company at ₹1,000 each (₹2,00,000 total), and the lot size for its Put options is 100. You’re concerned about a specific upcoming event in three weeks.
- You select an expiry that comfortably covers that three-week period (likely the near month or next month contract).
- You choose a strike close to ₹1,000 (near ATM) for stronger protection, accepting the higher premium cost as the price of that protection.
- You buy 2 lots (200 shares ÷ 100 lot size = 2), matching your holding exactly.
- You confirm liquidity and cost, place the order, and note your position now has downside protection through that expiry, alongside your continued share ownership.
Common Beginner Mistakes
- Choosing a Put strike or expiry without a clear, specific protection goal in mind. “I’ll just buy some Puts” is a weaker starting point than “I want protection against a 10% drop over the next three weeks.”
- Mismatching hedge size to actual share count, without realizing whether the resulting position is under- or over-hedged.
- Forgetting that a hedging Put still requires monitoring and an eventual decision (hold, sell, let expire) - it’s not a “set and forget” purchase.
- Assuming hedging with Puts is only for large institutional portfolios. It’s genuinely accessible to individual retail investors with even modest stock holdings, once lot sizes are understood.
Practical Tips
- Before hedging any real holding, write down explicitly: what specific risk am I protecting against, for how long, and how much premium am I comfortable paying for that protection?
- Practice the shares-owned ÷ lot-size calculation on paper with a few different holding sizes until sizing a hedge feels straightforward.
- Whether hedging or speculating, always confirm liquidity (bid-ask spread, volume) before placing the order - this matters equally for both use cases.
Practical Exercise
- Using your broker's app (without placing a real order), search for a Put option on a stock or index of your choice, and walk through every step in this lesson's checklist - noting the premium, strike, expiry, and liquidity you observe.
- If you own (or hypothetically owned) shares of a specific company, work out roughly which Put strike and expiry you might consider to hedge that position for the next month, using this lesson's process and Lesson 20's hedging example as a guide.
Mini Quiz
1. Is the practical process of buying a Put option (search, select, check liquidity, place order) different from buying a Call option?
The practical, mechanical process is essentially identical to buying a Call (Lesson 18) - search, select expiry/strike, check liquidity, place the order - the only difference is choosing the Put (PE) side instead of Call (CE).
2. When buying a Put specifically to hedge an existing stock holding, what's an important strike selection consideration?
Strike selection for hedging involves a trade-off - a strike closer to the current price (more ITM-leaning) offers more complete protection but costs more in premium; a further OTM strike costs less but only protects against larger declines.
3. What should you verify about the expiry date when buying a Put for hedging purposes?
For hedging, the Put's expiry should reasonably cover the period you actually want protection for - buying protection that expires before your risk period ends defeats the purpose.
4. If you're buying a Put purely for speculation (not hedging an existing holding), what's the same key consideration as with Call buying?
Whether speculating or hedging, checking liquidity, understanding total cost, and calculating breakeven remain essential steps before placing any Put order - the process from Lesson 18 applies directly.
5. Can you exit a Put position before expiry the same way as a Call position?
Just like with Calls, you can close a Put position anytime before expiry by selling the exact same option back into the market, realizing whatever profit or loss exists at that moment.
6. What is one practical difference in mindset between buying a Put for hedging versus buying one for speculation?
When hedging, an expiring-worthless Put often means your actual concern (a price decline) didn't materialize - a genuinely good outcome overall, even though the Put itself "lost" its premium, unlike pure speculation, where that's simply an unfavorable trade outcome.
Frequently Asked Questions
Do I need a different type of account or broker access to buy Puts versus Calls?
No - the same F&O segment activation (Lesson 11) and trading account cover both Call and Put options; there's no separate approval needed specifically for Puts.
How much of my existing stock position should a hedging Put typically cover?
This depends on the lot size of the available Put contract relative to your share holding - if your shares don't align neatly with a whole number of lots, your hedge will only partially or slightly over-cover your actual position. Always calculate this explicitly (shares owned ÷ lot size) rather than assuming a perfect match.
Is it more expensive to buy a Put for hedging than for pure speculation?
The premium is the premium, regardless of your underlying intent - the market doesn't price a Put differently based on whether you're hedging or speculating. What differs is how you select the strike and expiry, based on your specific protection goals versus a pure directional view.
What happens to my hedge if I sell my underlying shares before the Put expires?
Your Put position remains open independently - it doesn't automatically close just because you sold the shares it was hedging. At that point, it effectively becomes a standalone speculative position (since there's no longer an underlying holding to protect), and you'd manage it accordingly, likely closing it out separately if it no longer serves its original purpose.
Can I buy multiple Puts at different strikes to build more nuanced protection?
Yes - combining multiple options at different strikes is the basis of several structured strategies (covered in Module 13), allowing for more tailored risk/reward profiles than a single Put alone.
Should beginners hedge, or is that better left to experienced traders?
Buying a single protective Put is one of the more straightforward, capped-risk applications of Options, and is genuinely accessible to beginners who already own shares and want to understand and manage risk - though it still requires understanding premiums, strikes, and expiry, all covered in this course.
What's a common mistake specific to buying Puts for hedging, rather than speculation?
Under-protecting (choosing a strike too far OTM to meaningfully help) or over-paying for more protection than actually needed for the specific risk period in question - both stem from not clearly defining the hedge's goal (how much protection, for how long) before selecting the contract.
If my hedging Put ends up ITM and profitable, do I need to do anything specific?
You can sell it to realize the profit (offsetting your shares' loss), or in principle let it settle/exercise, depending on your broker's process for cash-settled index options versus stock options - most traders actively close the position to control the exact timing and realize the offsetting gain clearly.
Does buying a Put affect my existing shareholding in any way (voting rights, dividends)?
No - buying a Put option is a completely separate derivatives position from your actual share ownership. Your voting rights, dividend eligibility, and everything else related to owning the shares themselves remain entirely unaffected by holding a Put alongside them.
How is this lesson different from Lesson 18 (buying a Call), practically speaking?
The mechanical steps are nearly identical - the meaningful differences are in strike/expiry selection logic (especially for hedging) and the underlying market view (bearish or protective, rather than bullish). This lesson deliberately reinforces the same process while highlighting the hedging use case specifically.
Glossary
Key Takeaways
- The practical process for buying a Put option mirrors buying a Call (Lesson 18) almost exactly - search, select expiry/strike, check liquidity, place order.
- When buying a Put for hedging, strike selection involves a trade-off between protection level (closer strikes = more protection) and premium cost.
- A hedging Put's expiry should reasonably cover the actual period of concern - protection that expires too early defeats the purpose.
- Buying a Put doesn't affect your existing shareholding (voting rights, dividends) in any way - it's a fully separate position.
- When hedging, an expiring-worthless Put often reflects a genuinely good overall outcome (your shares didn't fall) - a different mindset than pure speculation.
- Calculate shares owned ÷ lot size explicitly when sizing a hedge, since a perfect one-to-one match isn't always possible.
Conclusion
You now have the complete practical process for buying a Put option - whether for a bearish speculative view or to protect an existing holding, mirroring exactly what you learned for Calls in Lesson 18, with the added nuance of hedge sizing and protection-period matching. Next, we complete Module 7 by covering the flip side: selling (writing) a Put option - the mirror image of Lesson 19's Call selling lesson, applied to a neutral-to-bullish view instead.