Portfolio beta put hedge
This is not a trading system but an insurance programme: it protects a stock portfolio by buying out-of-the-money NIFTY monthly puts, sized from the portfolio's value and beta, and rolls them each month. When India VIX is elevated it buys more puts. The results show only the hedge itself, so they measure what the protection cost and what it paid back.How it trades
Results
PRE-BUILT · DEFAULTSWhere it made and lost money
As insurance, the puts only paid when the market fell. In this test the five cycles in which NIFTY fell more than 1% while the puts were held made ₹16,15,624 together, while the five cycles with the index within ±1% lost ₹5,17,692 and the three in which it rose more than 1% lost ₹6,11,026: the puts simply decayed. Every bucket has fewer than eight cycles, so no condition can be judged reliably, and the gains come mostly from one sharp fall. That is the nature of out-of-the-money protection: it costs money in most months and pays in the rare month that matters.
About this strategy
- Enter the value of the stock holdings (₹50 lakh by default) and their beta against NIFTY (1.0 by default).
- If yesterday's India VIX close was above 15, scale the beta up: with VIX at 20 the hedge is 10% larger.
- Work out the number of lots so that the puts' combined delta matches the beta-weighted portfolio, counting each 0.20-delta put as 0.20 of a lot of NIFTY.
- At 09:30, buy that many puts of the nearest monthly NIFTY expiry with more than five sessions left, at the strike whose delta is closest to 0.20.
- Hold with no stop: the puts are insurance, not a trade.
- Five trading sessions before expiry, sell the puts and buy the next month's set a minute later, re-sized with that day's VIX and index level.
Why traders use it
Investors with a large equity portfolio often cannot sell their stocks before a feared fall, for tax or long-term reasons. Buying index puts is a quick way to protect the whole basket, and beta-weighting makes the hedge match how much the portfolio actually moves with NIFTY. Out-of-the-money puts are cheap compared with at-the-money ones, and boosting the hedge when VIX rises adds protection just as markets become nervous.
The year in plain words
From 1 Oct 2025 to 30 Sep 2026 the put hedge on a ₹50 lakh, beta-1.0 portfolio went through 13 monthly cycles. Only 4 cycles made money, yet the puts finished ₹4,86,905 ahead before costs (profit factor 1.41) and ₹4,77,305 ahead after ₹20 per order and bid-ask slippage. Almost all of it came from March 2026, when the puts gained ₹13,92,202 in a sharp fall. Most other months cost between ₹70,000 and ₹3.2 lakh, and the hedge's own maximum drawdown before costs was about ₹8.3 lakh. That is how insurance behaves: a steady premium bill, then a single large payout.
What the settings do
Risks
- In a year with no sharp fall the hedge loses its cost every month; this run had nine losing months.
- Sizing by delta at entry only means the hedge can be too small early in a crash and too large in a slow drift.
- The beta is a typed-in number; if the holdings behave differently from NIFTY the protection will not match.
- The results depend heavily on one month; without the March 2026 fall the hedge would have been a large net cost.
Who it suits
Investors holding a sizeable equity portfolio who want to see what systematic index-put protection would have cost and returned, and who can accept regular monthly premium outflows in exchange for crash protection.
Questions traders ask
How do you hedge a stock portfolio with NIFTY puts?
Multiply the portfolio value by its beta to get the NIFTY-equivalent exposure, then buy enough NIFTY puts that their combined delta offsets it. This version uses 0.20-delta monthly puts, adds more when India VIX is above 15, and rolls them five sessions before each expiry.
Did the NIFTY put hedge make money in the backtest?
The puts alone made ₹4,86,905 before costs and ₹4,77,305 after ₹20 per order and bid-ask slippage from 1 Oct 2025 to 30 Sep 2026, on a ₹50 lakh portfolio. But only 4 of 13 cycles were positive and one month did nearly all the work. Statutory charges are excluded, and past results do not guarantee future ones.
Why do the results not include the stock portfolio?
The backtest can only trade F&O, so the stocks themselves never trade here. The trade log prints, for each cycle, what a beta-weighted portfolio would have made over the same dates and the hedged total, so the hedge's effect can be compared directly.
What does portfolio beta mean?
Beta measures how much a portfolio tends to move for each 1% move in NIFTY. A beta of 1.0 moves in line with the index; higher-beta portfolios of midcaps or cyclicals move more and need a larger hedge.