Purchasing 10% OTM puts- where am I going wrong?

I purchased \~10% OTM Nifty puts expiring in March today. This position is roughly 0.5% of my portfolio. I’ll outline my reasons for doing so. Can someone tell me why this isn’t a sensible decision? I’m not talking about the probability of a 10% fall happening, I’m aware its highly unlikely.  The Strategy In *The Dao of Capital*, Mark Spitznagel outlines a tail hedging strategy that’s similar to buying insurance for your portfolio. He recommends allocating roughly 0.5% of portfolio value each month to tail hedges—typically deep OTM puts (around 30% OTM) with maturities 2 months out that roll over monthly. In normal market conditions, you sacrifice a small premium for this “insurance”. But in a market crash, these tail hedges can generate outsized gains, cushioning or even reversing losses on your main portfolio. Spitznagel famously made a 41x trade in April 2020 during the COVID crisis using this strategy. While markets plummeted, his tail hedge thrived- antifragility at work.  Here is Spitznagel explaining his strategy - [https://www.youtube.com/watch?v=o3Qno1rT-nw&t=214s](https://www.youtube.com/watch?v=o3Qno1rT-nw&t=214s) I’ve adopted a slightly tailored and much simpler version of this strategy- I allocated 0.5% of my portfolio to buying \~10% OTM puts expiring in March (1.5 months). This small sacrifice allows me to remain nearly fully invested in equities while knowing that if the market falls by more than 10% by March end, my portfolio will be partially insulated letting me sleep peacefully at night. Here’s a rough back-of-the-envelope based on my assumptions: * **Portfolio Beta:** Since my portfolio is concentrated in small and micro caps, I’m assuming a beta of roughly 2.5. This implies that for a 10% drop in the index, my portfolio might fall by about 25%, and for a 15% index decline, by roughly 35%. * **Hedge Impact:** * For any index decline up to about 9%, the only additional loss is the 0.5% premium on the puts- something I find perfectly acceptable. * At a 10% fall, my calculations suggest I’d be about 2.16% better off compared to not having the puts.  * At a 12.3% drop, even though my portfolio (with a 2.5 beta) might decline by roughly 30%, the hedge would limit the overall damage to just 12%. * At a 16.4% drop, the hedge would be so effective that I’d actually come out net positive, offsetting all of the 40% portfolio losses. * At a 20% index fall, even if my portfolio were to drop by 50%, the hedge’s returns could result in an overall gain of over 10%. https://preview.redd.it/1azu4jbx4xie1.png?width=752&format=png&auto=webp&s=9eb6b2fb2bda1516fbe47c69809c7114a8068ab7 Before anyone comes after me- I fully recognise that historical beta estimates are imperfect guides, especially during periods of stress. Still, these numbers provide a useful framework: beyond a 10% market fall, the 0.5% tail hedge starts to offer genuine protection and past a 15% drop, its impact becomes highly pronounced. A 10%+ market fall by March’s end is highly unlikely- I’m almost certain it won’t happen. But in the off change that it does, by sacrificing just 0.5% of my portfolio to insure against such a move I am protected against severe market downturns.  Where am I going wrong with this logic? For more information on this strategy, 3 books I'd recommend are: 1. The Dao of Capital - Mark Spitznagel 2. Antifragile - Nassim Taleb 3. Chaos Kings - Scott Patterson https://preview.redd.it/8lidq0xx4xie1.png?width=1170&format=png&auto=webp&s=b7ccd986478b497913553ea4f447c88d25554e46