What Is a Married Put?

Married put is an options trading strategy where an investor, holding a 澳洲幸运5官方开奖结果体彩网:long position in a stock, purchases an 澳洲幸运5官方开奖结果体彩网:at the money put option on the sam🉐e stock ⛦to protect against depreciation in the stock’s price.

The benefit is that the investor can lose a small but limited amount of money on the stock in the worst price drop scenario, yet still can participate in any gains from price appreciation. The downside is that the 澳洲幸运5官方开奖结果体彩网:put option costs a premium—and it is usually significant.

In terms of downside protection, a married put may be compared with a 澳洲幸运5官方开奖结果体彩网:covered call.

How a Married Put Works

🅰 A married put works similarly to an insurance policy. It is a bullish strategy used when the investor is concerned about potential near-term uncertainties in the stock price.

By owning the stock with a protective put option, the investor receives the benefits of stock ownership, such as dividends and the right to vote. In contrast, just owning a 澳洲幸运5官方开奖结果体彩网:call option, while equally as bullish as owning the stock, does not cﷺonfer the same benefits of stock ownership.

A married put behaves synthetically like a long call, and as a result will have unlimited profit potential, as there is no ceiling on the price appreciation of the 澳洲幸运5官方开奖结果体彩网:underlying stock.

However, profit is always lower than it would be by owning just the stock. It’s decreased by the cost or premium of the put option. 🎃Reaching breakeven for the strategy occurs when the underlying stock rises by the amount of the options premium paid. Anything above that amount is profit.

The benefit of a married put is that there is now a floor under the stock, limiting 澳洲幸运5官方开奖结果体彩网:downside risk. The floor is the difference between the price of the underlying stock at the time the married put was bought and the 澳洲幸运5官方开奖结果体彩网:strike price of the put.

Put another way, whꩲen an investor purchased th🦄e option, if the underlying stock traded exactly at the strike price, then the loss for the strategy is capped at exactly the price paid for the option.

A married put is also considered a 澳洲幸运5官方开奖结果体彩网:synthetic long call since it has the same profit profile. The strategy is similar to buying a regular call option (without th꧒e underlying stock) because the same dynamic is true for both: limited loss, unlimited potential for profit.

The difference between thesꦜe strategies is ꩵsimply how much less capital is required to buy a long call.

Married Put Example

Let’s say a trader chooses to buy 100 shares of XYZ stock for $20 per share and one XYZ $17.50 put for $0.50 (100 shares × $0.50 = $50). With this combination, they have purchased a stock position with a cost of $20 per share but have also bought a form of insurance to protect themselves in case the stock declines below $17.50 before the put’s expiration.

So, say the stock price drops unexpectedly to $15 per share. The trader’s loss of $5 per share on the long position could be partially offset by the put’s profit of $2.50.

When to Use a Married Put

Rather than a pure profit-making strategy, a married put is a capital-preservingꦑ strategy. The downside loss potential is limited. Bear in mind that the premium paid for the put is a built-in cost that reduces the strategy’s savings potential.

Therefore, investors typically use a married put as an insurance policy against near-term uncertainty in an otherwise bullish stock, or as protection against an unforeseen price breakdown.

Newer investors can benefit from knowing that th♔eir losses in the stock will be limited. This can give them confidence as they learn more about different investing 𒐪strategies.

Of course, this protection comes at a cost, which includes the price of the option, 澳洲幸运5官方开奖结果体彩网:commissions, and possibly other fees.

The Bottom Line

In a ma🍸rried put options trading strategy, an investor holding a long position in a stock buys an at the money put option on the same stock to protect against depreciation in 🦩the stock’s price.

The upside is that the investor can lose a small but limited amount of money on the stock in the worst price drop scenario, but can still participate in any gains from price appreciation. The downside is that the put option costs a premium, which is usually significant.