🛞 Selling puts in India: margin, not cash, and the wheel

🎯 In 30 seconds: Selling a put means you promise to buy one lot of a stock at the strike price if the put ends in the money at expiry, and you are paid a premium for that promise. In the US this is often done "cash-secured", with the full purchase price set aside. Indian brokers do not ask for that. They block SPAN plus exposure margin, which is a fraction of the contract value. But Indian stock options are physically settled, so if the put ends in the money you must pay for the whole lot. Keeping the full cash ready is a discipline you choose, not a rule. The wheel adds covered calls on top. It earns small, steady amounts in calm markets and can lose a lot in a fall.

The idea in plain words

A put gives its buyer the right to sell the underlying at the strike price at expiry (see Put options). When you sell a put, you take the other side. You promise to buy a full lot at the strike if the put finishes in the money.

Why would anyone do that? Say you like Sharma Foods Ltd at ₹1,000 but would rather buy at ₹960. You could place a limit order at ₹960 and wait. Or you could sell the 960 put and be paid while you wait. If the share is below ₹960 on expiry day, you end up buying at ₹960, which is what you wanted. If it is not, you keep the premium.

Think of a wholesaler who tells a rice farmer: "I will buy your whole harvest at ₹2,400 a quintal after the season, whatever the market price is then. Pay me a small fee for this guarantee." If prices stay high, the farmer sells elsewhere and the wholesaler keeps the fee. If prices crash, the wholesaler must still pay ₹2,400 for every quintal. The fee was small. The obligation was big. That is a short put.

Cash-secured in the US, margin in India

In the US, a "cash-secured" put means the broker sets aside strike x 100 in cash. Indian brokers work differently. A short option is an F&O position, and NSE Clearing margins it with SPAN, a portfolio system that estimates the worst one-day loss across a set of price and volatility scenarios, plus an extreme loss margin (also called exposure margin). For short stock options the extreme loss margin is 3.5% of notional value, more for strikes deep out of the money, per NSE's margin page (October 2026).

The result is that a put which could oblige you to pay ₹4.8 lakh might block well under a lakh in margin. The exact figure changes daily with volatility and differs by stock. Your broker's margin calculator shows it before you trade.

So in this chapter "cash-secured" means a habit: you keep the full strike x lot available in your account (or in liquid funds you can move quickly) for every put you sell.

The payoff at expiry

The example is hypothetical. The lot size of 500 shares is made up for easy maths. Real lot sizes are set by the exchange and differ by stock. The premium comes from a Black-Scholes model at 28% implied volatility, rounded.

• Maximum profit = premium x lot = ₹6,500, if the share is at or above ₹960 at expiry.
• Breakeven = strike - premium = ₹960 - ₹13 = ₹947.
• Maximum loss = (strike - premium) x lot = ₹4,73,500, if the share goes to zero.
• Return on the full cash if it works = ₹6,500 / ₹4,80,000 = 1.35% for 28 days.

Notice the return figure. On the full cash it is 1.35%. On the ₹90,000 margin it would look like 7.2% a month. That second number is the one that tempts people to sell too many puts. It is a leveraged number: the same one-lot loss that costs you 10% of ₹4.8 lakh costs you more than half of ₹90,000.

Six endings

Same trade: sold the 960 put for ₹13. The last column shows what would have happened if you had simply bought 500 shares at ₹1,000 today. Charges are left out.

Check the ₹900 row: you paid ₹4,80,000 for shares worth ₹4,50,000, a ₹30,000 loss, minus the ₹6,500 you kept.

The honest trade-off is plain. In the bad rows you lose less than someone who bought at ₹1,000, because you bought lower and kept a premium. In the good rows you make far less. The put seller's best case is always ₹6,500.

Physical delivery: what a put seller actually faces

Indian stock options are European style and physically settled. Nothing happens before expiry. On expiry day, in-the-money options are exercised automatically and matched against sellers of that series. For a put seller that means:

• You must pay for the full lot. If Sharma Foods settles at ₹900, you are buying 500 shares at ₹960, so ₹4,80,000 leaves your account. The shares arrive in your demat through the clearing corporation's settlement.
• Margins rise in expiry week. Positions that may end in delivery attract delivery margins before expiry. NSE Clearing's January 2020 circular set the build-up at 10%, 25%, 45% and 70% of the computed delivery margin over the last four days before expiry. Check the current rules and your broker's policy, because they can change and brokers often ask for more.
• Your broker may close the trade for you. Many brokers square off in-the-money stock option positions near expiry if the money for delivery is not in the account. That can happen at a bad price on a busy afternoon.
• The decision moves with the price. A put that is out of the money on Monday can be in the money by Tuesday's close. If you do not want delivery, close the position before the final hours of expiry day.

Exercise, assignment and expiry day in India covers settlement prices and timelines in detail.

Choosing the strike and expiry

The rules mirror covered calls.

• Pick a strike you would be glad to pay. If you would not want 500 Sharma Foods shares at ₹960 with your own money, do not sell the 960 put.
• Closer to the current price: more premium, more likely to end in the money.
• Lower strike: less premium, more room before you lose money. In the model, the 940 put is about ₹8 and the 900 put about ₹2.50.
• Delta gives a rough, model-based sense of the chance of ending in the money. The 960 put's delta is about -0.26. See The Greeks.
• Expiry: stock options are monthly, expiring on the last Tuesday of the month on NSE (October 2026). Time decay speeds up in the last couple of weeks, which is why sellers often use the near month. Check results dates first: a put sold just before results carries the results risk.
• Liquidity: many stock option strikes trade thinly. A wide bid-ask gap can take a big bite out of a ₹13 premium, and getting out early can cost even more.

The wheel, adapted to India

The wheel is a loop that alternates short puts and covered calls on the same stock.

1. Sell one lot of a put at a strike where you would like to buy, with the full cash available. If it expires worthless, keep the premium and sell another.
2. If it ends in the money, you take delivery of the lot at the strike. Your effective cost is the strike minus the premium.
3. Sell one lot of a call against those shares, ideally at a strike at or above your cost. If it expires worthless, keep the premium and sell another.
4. If the call ends in the money, your shares are delivered and you are back to cash. Go to step 1.

The Indian version has more friction than the US one. Each turn is monthly, so a full loop takes at least two months. Each delivery leg goes through physical settlement with its margins and delivery charges. And the short call in step 3 also needs margin, which usually means pledging the shares you just received (see Margin in India).

A good loop. The share dips to ₹940 at expiry, so you buy 500 at ₹960. Next month you sell the 980 call for ₹12, and the share ends at ₹1,010, so your shares are delivered at ₹980.

A bad loop. Same start, but after delivery the share keeps falling to ₹800 and stays there. Calls at your ₹960 cost now pay almost nothing. You have two poor choices:

• Keep selling calls at or above ₹960, collect a rupee or two, and sit on an ₹80,000 paper loss.
• Sell calls below your cost, say the 840 call for ₹14. If the share bounces and your shares are delivered at ₹840, the result is (840 - 960) x 500 + ₹6,500 + ₹7,000 = -₹46,500. The premiums turned into a locked-in loss.

This is the core truth about the wheel: it is a way of owning a stock with some extra income. When the stock falls hard, you own it all the way down like any other shareholder.

The real risks

• Big drops. The maximum profit is small and fixed. The maximum loss is most of the strike value. A few calm months of 1% gains can be wiped out by one 25% fall after bad results or a governance problem.
• Overselling because margin allows it. This is the India-specific trap. The margin system lets you sell far more lots than you could ever take delivery of.
• Missed rallies. If Sharma Foods jumps to ₹1,300, the put seller makes ₹6,500. The shareholder makes ₹1.5 lakh.
• Concentration. One lot can tie up several lakh rupees in a single company. With a small account, one wheel can be your whole portfolio. See Diversification and correlation.
• Costs. STT on selling an option is 0.15% of the premium from 1 April 2026 (NSE circular, March 2026). Brokerage, exchange charges, stamp duty and GST add up, and delivery legs carry their own charges. Over many small trades they matter. See What trading really costs in India.

Tax, briefly

General information only. Profit or loss on the option itself is generally treated as business income. If you take delivery, the shares become a holding with their own cost and holding period, and selling them later is a separate event. Read Taxes for traders and investors in India and ask a chartered accountant before filing.

Try it

All of this can be done on paper.

1. Pick one F&O stock you would be happy to own for a year. Note its lot size and multiply by a strike about 4% below today's price. Can you honestly keep that amount ready? If not, this stock is too big for you.
2. In your broker's margin calculator, enter one lot of that short put. Write the margin it shows next to the full cash figure. The gap between the two is the leverage the system offers you.
3. On NSE's option chain, write down the bid, ask and open interest for that strike in the near month.
4. Record the premium, breakeven and maximum loss in your trading journal. Then follow it to expiry, and if it would have ended in the money, write the covered call you would sell next.
5. After two months, compare the wheel's paper result with simply buying the shares on day one.

Sources

• NSE: Margins in equity derivatives (SPAN, extreme loss margin)
• NSE: Equity derivatives on individual securities (European style, physical settlement, expiry day)
• NSE Clearing circular, 17 January 2020: Delivery margins for delivery settlement in equity derivatives
• NSE circular, 31 March 2026: Changes in rates of Securities Transaction Tax
• SEBI (August 2026): Profitability of individual traders in the equity derivatives segment, FY25 to FY26