Equal-Probability Model
Buy or Sell?
Historical back-test assuming every year from 2000–2023 has an equal chance of repeating. Expected returns are computed as the simple average across all 24 years.
Expected return for 24000 PE: ₹155,994 per crore
4 out of 24 years were positive. Positive expected value suggests buying protection is mathematically favourable.
| Strike | Premium | Premium Cost | Expected Return | Expected Payoff | Win Rate |
|---|---|---|---|---|---|
| 21000 PE | ₹180 | 0.00% | ₹112,468 | 1.12% | 2/24 |
| 22000 PE | ₹295 | 0.00% | ₹134,598 | 1.35% | 4/24 |
| 23000 PE | ₹435 | 0.00% | ₹154,348 | 1.54% | 4/24 |
| 24000 PE | ₹630 | 0.01% | ₹155,994 | 1.56% | 4/24 |
Results Summary
Which expiry dates are we looking at?▼
Which expiry are we talking about?
Dec 2025. Shorter timelines might have a lot of hassle, rolling costs, and mental overhead.
Should you take the premium?▼
What does the Maths say?
Math says — Take this option. Based on equal probability across 24 years of Nifty data, the expected return for the best strike (24000 PE) is ₹155,994 per crore invested.
Okay. Which options should I go for?▼
What does the Maths say?
24000 PE has the highest expected return. However, not a lot separates all the strikes. Considering Nifty might fluctuate but finally settle above current levels in a year, the one with the least premium — 21,000 or 22,000 — seem to be ideal.
Alright. This is maths. But should I take the premium?▼
What does the logic say?
Two main considerations: 1. The payoffs are positive mainly because of rare events — 2008 and 2011. If you think the likelihood of a 2008-style crash is more than 1 in 24, the options are something you should buy. 2. If at any point in the next year Nifty falls by more than 10% from current levels, you will be in a better situation than doing nothing.
Other considerations▼
How long would it take if I have made my decision?
You will not get this in a single day. Will need to keep buying these over time, assuming 4 lots each trading day. This will take about a week per crore.
Key Insight
Positive payoffs are driven primarily by rare events (2008 crash, 2011 correction). If you believe the probability of such events is higher than 1 in 24, buying protection makes mathematical sense. Otherwise, you are paying a premium for peace of mind.