Monday 2 Feb 2026, the first full session after the Union Budget. Nifty closed at 25,088.40 and the March future settled at 25,297.40, so one lot of 65 units was worth Rs 16,44,331. Take a model portfolio of Rs 50 lakh of shares with a beta of 0.95 to Nifty. It carries Rs 47,50,000 of Nifty exposure, which is 2.89 lots. On Monday 30 Mar Nifty closed at 22,331.40, 11.0% lower. I use this window as a drill because a futures hedge is arithmetic before it is a view, and the arithmetic has four places where it leaks. The portfolio is made up and sizes nobody's real holdings. A hedge here means protecting something you already own. Selling futures with nothing to protect is a different trade, and this lesson does not teach it. Every market figure comes from NSE end of day files and is dated, not live.
3By the end you can
- Work out the lots of Nifty futures that offset a portfolio from its value and beta.
- Name the four places a futures hedge leaks and say which one beta cannot fix.
- Set a futures hedge against a put hedge in a fall and in a rally.
The idea, plainly
Beta, exposure and lots
Beta is the slope of a portfolio's returns against Nifty's. A beta of 0.95 says that over the window used to estimate it, the portfolio moved about 0.95 percent for each one percent in Nifty. It is an estimate from the past, and it drifts. The estimate also depends on how many months of returns went in and on which index they were measured against, so two honest estimates of the same portfolio can differ by a tenth or more. Multiply the value by beta to get the exposure the hedge has to offset, then divide by what one lot of the future is worth.
Lots =
value x beta
/ (future x lot size)
Value times beta, over one lot, gives the lots to sell
Read one more paragraph, 61 words
That is the answer to what beta hedging is: a hedge sized by beta, so that a fall in Nifty is met by a gain on the future. Only whole lots trade, so the sum is rounded. Here three lots, which sell Rs 49,32,993 of Nifty against an exposure of Rs 47,50,000. That is Rs 1,82,993 more than the exposure.
Futures or options?
The question most readers ask is whether to hedge with futures or with options. Both pay out when Nifty falls, and they differ in what they give away. A sold future costs no premium, but it also gives up the gains: when Nifty rises, the future loses what the shares make. A bought put costs a premium up front, caps the loss at a floor and keeps the gains. A future needs margin and is marked to market every evening, so a rally means cash paid out on the hedge while the gain on the shares is still on paper. Module 17.3 and module 17.4 cover the put side, and the lesson on hedging with Nifty puts goes deeper. The short answer is on the futures or options page.
Margin, cash and charges
A sold future is not free to hold. Margin is blocked against it, and every evening the gain or loss is settled in cash, as module 13.1 showed. The three lots here carry Rs 49,32,993 of exposure. A rise of one percent in Nifty would cost the hedge about a hundredth of that in cash, before any gain on the shares is realised. Charges apply too. At the rates in force from 1 Apr 2026, a sale of three lots of this size costs Rs 2,466 of STT, at 0.05% of the value, and about Rs 90 of NSE transaction charge, before brokerage, SEBI fee and GST. On 2 Feb 2026 itself the futures STT rate was lower, 0.02%. Module 12.5 covers the margin, and module 12.6 the full charge stack.
What is basis risk?
Basis risk is the risk that the hedge and the thing hedged do not move together one for one. Four leaks sit in the example. The future starts above the index, and that premium melts to zero by expiry, which helps a seller of the future here. Whole lots round the hedge up or down. The beta may be wrong. And the portfolio is not the index: its stocks can move on their own news, which no Nifty hedge offsets. The word is also used for the future against the cash index alone, which is the first of the four. A hedge that outlasts one expiry also has to be rolled, which adds the gap between two months, as in module 13.6. The short answer for a stock or fund is on the basis risk page.
Worked example: three lots against a model portfolio
The portfolio is hedged on 2 Feb 2026 with three lots of the March future sold at 25,297.40. Nifty ended on 30 Mar at 22,331.40, the final settlement for that expiry. The portfolio, with a beta of 0.95, lost Rs 5,21,984. The three lots gained Rs 5,78,370.
Nifty fell by about a tenth in the eight weeks of this hedge
The same three lots cover a low beta and fall short at a high one
| Three lots, Rs | Unhedged | Futures sold | Put bought |
|---|---|---|---|
| 2 Feb to 30 Mar 2026, Nifty 11.0% lower, put 24,000 for 130.25 a unit | −Rs 5,21,984 | Rs 56,386 | −Rs 2,22,006 |
| 10 to 30 Jun 2026, Nifty 2.8% higher, put 22,100 for 47.05 a unit | Rs 1,33,160 | Rs 11,158 | Rs 1,23,985 |
Read 3 more paragraphs, 317 words
The hedge gained Rs 56,386 more than the portfolio lost, though it was meant to offset it. Of that, Rs 40,755 is the basis, the premium of the future over the index that melted away. The other Rs 15,631 is the rounding up to three lots. Neither is skill, and neither is stable. Now beta. If the true beta had been different, the loss would have been too. The bars set the portfolio's loss at four betas against the fixed gain on three lots.
Here is the whole picture for two windows, the fall and the rally that followed. The put in each window is the strike in round hundreds nearest to 95 percent of the future, three lots, held to expiry. Figures are before charges.
In the fall the future ended the portfolio ahead, the put left it Rs 2,22,006 down after paying Rs 25,399 for the cover, and doing nothing lost Rs 5,21,984. In June the rally turned the picture over. The futures hedge paid out Rs 1,22,002 in cash while the portfolio gained Rs 1,33,160 on paper, and the put just expired worthless. Read the two rows together. Of the two hedges, the future did more in the fall and the put did more in the rally. Neither could have been picked in advance, which is why the choice rests on what a holder can carry: a cash drain on the way with the future, a premium that is certain with the put, or a gain given up with either. A futures hedge is a trade of upside for protection, not a cost-free shield. Hedging only part of the exposure is possible too. Cover of half the exposure leaves half the loss, and half the cash drain, in the same proportions. The hedge calculator below opens on this March example with the same portfolio and lets you move the beta and the cover.
The common mistake
The belief: Once I have hedged, my portfolio cannot lose.
A hedge removes some of the exposure to Nifty, not all of the risk. In March the net came out Rs 56,386 ahead and not at zero, from the basis and the rounding. At a beta of 1.15 the same three lots would have left the portfolio Rs 53,506 behind, and the stocks themselves can still move on their own. In June the cash paid out on the hedge was real and the gain it offset was not yet. A hedge is measured by the loss it removes, the cost of carrying it and the cash it needs on the way.
Key takeaways
- Lots equal value times beta over the value of one lot.
- Whole lots mean the hedge is always rounded.
- A sold future gives up gains, and needs cash every evening.
- Basis, beta, rounding and the stocks themselves leave a gap.
- A hedge protects what you own, and is not a view.
- A put costs a premium and keeps the gains.
The term this section turns on: Beta
Before you trade. Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. Read the SEBI study