Monday 2 Feb 2026. The March Nifty future settled at 25,297.40. A put 2.0% below it, the 24,800, cost 291.95 a unit, which is Rs 18,977 a lot. Two other ways to hold cover cost far less. A put spread cost 161.70 a unit. A collar brought in 1.05. On Monday 30 Mar Nifty closed at 22,331.40, 11.7% under that future. One lot of the bare future lost Rs 1,92,790. With the put the loss was Rs 51,308, with the put spread Rs 1,51,301 and with the collar Rs 32,263. Cheaper cover is different cover, not the same cover at a discount. This lesson shows what each one gives up for the saving. All three sit on a position already held, here a lot of the Nifty future. Every figure is from NSE end of day files and dated, so nothing is live and none of it is a view on where Nifty goes.
3By the end you can
- Draw the payoff of a put spread hedge and of a collar on a held Nifty future, with the cover and the ceiling marked.
- Work out the cost, the floor and the ceiling of each from dated NSE settlement prices.
- Say why a zero cost collar still costs something, and why its call strike sits near the money.
The idea, plainly
A plain put is a policy with no limit below its strike, and the premium is its price. Cheaper cover cuts that price by cutting something from the policy. A put spread cuts the cover below a second, lower strike. A collar cuts the gains above a call strike. Either way the saving is paid for somewhere else, and the work is to find where. The covered call and the plain protective put are in covered call, protective put and cash secured put.
What is a put spread hedge?
The holder keeps the future and buys a put, as in a plain hedge. The holder also sells a put at a lower strike. On 2 Feb 2026 the bought 24,800 put cost 291.95 and the sold 24,000 put paid 130.25, so the pair cost 161.70, 44.6% less than the bare put. The pair pays at most 800 points, the gap between the strikes. Below the lower strike the sold put loses as fast as the bought put gains, and the loss on the future starts again, point for point. The sold put sits against a bought put and a held future, so it is one leg of a hedge. A put sold with nothing underneath it is a different position, and this lesson does not cover it. RupeeCase's own hedging page sets the same limit: insurance on what is already held.
Put spread hedge
Cover = upper strike
− lower strike
Cost = put bought
− put sold
A put spread covers 800 points of fall, then the loss starts again
What is a collar, and what makes it zero cost?
A collar adds a sold call to the bought put. The call premium pays for the put, and in exchange the holder gives up the gains above the call strike. Pick the call whose premium matches the put and the collar is called zero cost. On 2 Feb 2026 the sold 25,700 call paid 293.00, a little more than the 291.95 the put cost, so the holder took in 1.05 a unit. The first 2.0% of any fall stayed with the holder, and gains stopped 1.6% above the future. The held future covers the call, so the call adds no loss beyond the upside already given up. Zero cost means no premium. It does not mean no cost, since the price is the upside above 25,700.
Collar
Floor = put strike
Ceiling = call strike
Net cost = put paid
− call received
A zero cost collar fixes a corridor around the future
Are they cheaper hedges?
Cheaper in premium, yes: 161.70 for the spread and 1.05 received for the collar, against 291.95 for the plain put. Cheaper in what the holder gives up depends on the month. The next section shows a fall in which the collar lost least of the hedged positions and the spread lost most, and a rise in which the collar earned least.
Puts below the future were priced richer than calls above it
Read one more paragraph, 112 words
Why did the zero cost call sit so near the money? On index options, puts usually cost more than calls at equal distance from the future. On 2 Feb 2026 the 24,800 put was priced at an implied volatility of 12.9% and the 25,700 call at 11.8%. A dearer floor needs a bigger call premium to pay for it, so the zero cost call lands nearer than the put's mirror image would. The lesson on smile and skew explains why that tilt exists. Margin is set on the whole position, so a sold leg held against a bought leg needs less than the sold leg alone: see margins without jargon.
Worked example: one lot, a fall and a rise
The holder has one lot of the future, 65 units, in both windows. The fall runs from 2 Feb to 30 Mar 2026, 56 days. That expiry settled on the index close, the rule for expiries before 7 Dec 2026. The strikes are the 24,800 put bought, the 24,000 put sold for the spread and the 25,700 call sold for the collar. Premiums in the table are rupees a unit paid or received, results are rupees for the lot.
| Fall, one lot | Net premium | Result |
|---|---|---|
| Future alone | None | −Rs 1,92,790 |
| Put 24,800 | Pay 291.95 | −Rs 51,308 |
| Put spread | Pay 161.70 | −Rs 1,51,301 |
| Collar | Get 1.05 | −Rs 32,263 |
The put spread saved the premium and left most of the loss
Nifty fell through both strikes, so the spread stopped paying at the lower one
| Rise, one lot | Net premium | Result |
|---|---|---|
| Future alone | None | Rs 40,667 |
| Put 22,800 | Pay 158.80 | Rs 30,345 |
| Put spread | Pay 119.30 | Rs 32,913 |
| Collar | Get 12.20 | Rs 24,187 |
Read 3 more paragraphs, 268 words
The bare future lost Rs 1.93 lakh. The put cut that to Rs 0.51 lakh. The spread cut it only to Rs 1.51 lakh: Nifty fell far below the lower strike, as the chart shows, and the loss on the future ran again from 24,000 down. The collar lost Rs 0.32 lakh, the same floor as the put with 293.00 of call premium kept on top.
Now the rise. On 10 Jun 2026 the June future was 23,240.10, with 20 days to run. The same recipe gave a 22,800 put bought at 158.80, 1.9% below the future, a 22,000 put sold at 39.50 and a 23,600 call sold at 171.00, 1.5% above it. On 30 Jun Nifty closed at 23,865.75, 2.7% above the future.
The rise reverses the order. The bare future earned most, the spread gave back its smaller premium, and the collar earned Rs 16,481 less than the future because the sold call took every point above 23,600. Two windows show the shape and say nothing about how often either happens. All prices are settlement prices, before brokerage. Charges come on top. The bought 24,800 put was exercised in the money on 30 Mar and paid STT of Rs 201 on its intrinsic value. A sold option pays STT on its premium when sold: Rs 8.47 for the spread's 24,000 put and Rs 19.05 for the collar's call, at the rate then in force. From 1 Apr 2026 both rates are 0.15%, so the same hedge costs more to run after that date. See the real cost of a trade.
The common mistake
The belief: A zero cost collar is a free hedge.
Test it on the rise. The collar took in 12.20 a unit of net premium and still earned Rs 16,481 less than the bare future, because the call gave away every point above 23,600. The cost was real and arrived as forgone gains. The spread has its own version: it looks like the same cover for less, yet in the fall it left a loss of Rs 1,51,301 against Rs 51,308 for the plain put. Cheaper cover is paid for with a gap, a ceiling or both. The question to ask of any hedge is which loss it leaves and which gain it removes, before reading the price.
Key takeaways
- A put spread cuts the premium by ending the cover at a lower strike.
- Below the lower strike the holder carries every point of the fall again.
- A collar sells the gains above a call strike to pay for the put.
- Zero cost means no premium. The upside above the call is the price.
- Index puts usually cost more than calls at equal distance, so the call sits close.
- Both hedge a position already held. Neither is a view.
The term this section turns on: Collar
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