Educational content only. Downstox is not a SEBI-registered Research Analyst or Investment Advisor. This basket is an illustrative allocation template — tickers shown are examples, not recommendations. Consult a SEBI-registered advisor before investing.
NIFTY Put Spread
Cheaper convex hedge — defined risk
Long ATM put + short deep-OTM put creates a bounded hedge with 4-6× cheaper premium than naked puts. Trades max payoff for much lower drag in normal markets.
NIFTY Put Spread Equity Curve Simulation
5-year backtest with COVID + Ukraine events, before-vs-after drawdown, max drawdown reduction, and portfolio protection value.
Allocation for ₹5.00 L
Historical Scenario Breakdown
How NIFTY Put Spread Works — Deep Dive
By selling a deep-OTM put against your long put, you finance most of the hedge premium. You give up payoff BEYOND the short strike (rare tail events) but keep the fat middle of the downside distribution — which is where 90% of crashes actually land.
What each leg does
The primary growth engine (95% of portfolio). Compounds at ~12-18% annually in normal years but can drop 30-55% in crashes. This leg carries the bulk of your upside AND downside.
Deep OTM NIFTY puts. Expire worthless in 90% of months — that's the cost. But when markets crash 10%+, they can pay 10-30× the premium due to delta acceleration + IV expansion.
Rebalance annually — sell the outperformer, buy the laggard back to target weights. This forces "buy low, sell high" without requiring market timing skill.
Equity LTCG: 12.5% over ₹1.25L/yr after 1 year. Options: always taxed as business income at slab rate. Consult a CA for your bracket.
Capital-constrained hedgers, retail investors who want tail protection without the 2% annual drag
Put debit spreads cost 25-40% of naked put premium. Max payoff is capped (tradeoff for lower cost). Most cost-efficient convex hedge for retail.
Common Mistakes to Avoid
- Abandoning the allocation during a crash — the whole point is to hold through volatility. Selling the hedge leg locks in losses.
- Rebalancing too frequently — each trade costs STT, brokerage, and taxes. Annual rebalance is usually enough.
Frequently Asked Questions
Is NIFTY Put Spread SEBI compliant?
Yes. All assets listed (ETFs, index options, direct equity) trade on NSE/BSE. Downstox shows you the allocation; you execute each leg through your broker. We never hold your funds or recommend specific stocks.
How much money do I need to start?
Minimum ~₹5L to sensibly deploy the options leg (one NIFTY lot = ~₹18L notional, ~₹6-10k premium). Below that, skip the options leg and use a put-free variant.
Can I set this up as a SIP?
Yes. Automate monthly contributions across each leg in the same ratio. Most brokers (Zerodha, Groww, Upstox) support SIPs on ETFs directly.
What's the downside?
In strong bull years (like 2021 which saw NIFTY +24%), this basket will underperform pure equity by ~0.5-5%. That's the cost of protection. Over 10+ year cycles, reduced drawdowns + recovery speed usually catch up — but not always.
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Disclaimer: Simulation uses approximate historical returns for NIFTY and hedging assets (GOLDBEES, LIQUIDBEES, option premiums) between 2008–2024. Actual outcomes depend on entry timing, fund selection, rebalancing cadence, and broker costs. Downstox is not a SEBI-registered investment advisor. All information is educational. Past performance does not guarantee future returns.