A short future offsets the index in both directions, gains and losses alike
Say the portfolio tends to move with Nifty and you want its exposure cut for a few weeks. A short Nifty future does that in one trade. It offsets the portfolio's moves in both directions, so it protects against a fall and gives up the gain from a rise. The chart shows one short lot at the future price of 10 Jun 2026, with the index at expiry on the horizontal axis.
A put works the other way. You pay a premium up front. Below the strike the cover is full, and the loss is capped at the distance to the strike plus the premium paid. Above the strike the put expires unused, and the portfolio keeps its gain less that premium.
Beta sets the size. Beta is how much a portfolio tends to move for a move in the index. Multiply the portfolio value by beta, then divide by the value of one futures lot, to get the number of lots. Beta comes from past prices, so it drifts, and a holding can fall more or less than the index in a sell-off. The gap between the hedge and the holding is basis risk.
Futures need margin and carry no premium. Options cost a premium up front and leave the upside open. The better fit depends on the payoff and the cost for the risk being covered, and the charges on each trade come off the result.
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