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    Options Guide: Options Strategies: Married Put

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    Lamico Dellavvoltoio
    The married put strategy involves purchasing put options while also purchasing the equivalent number of shares in the underlying stock. This provides downside protection if the stock price falls but allows upside participation if it rises. The maximum loss is limited to the cost of the puts plus the difference between the stock purchase price and the put's strike price. The break-even point is the stock purchase price plus the premium paid for the puts. Volatility has a positive effect as it increases the value of the puts, while time decay negatively impacts the value of the puts as they approach expiration.

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    Options Guide: Options Strategies: Married Put

    Uploaded by

    Lamico Dellavvoltoio
    30 views3 pages
    The married put strategy involves purchasing put options while also purchasing the equivalent number of shares in the underlying stock. This provides downside protection if the stock price falls but allows upside participation if it rises. The maximum loss is limited to the cost of the puts plus the difference between the stock purchase price and the put's strike price. The break-even point is the stock purchase price plus the premium paid for the puts. Volatility has a positive effect as it increases the value of the puts, while time decay negatively impacts the value of the puts as they approach expiration.

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    firstrade.com-Options Guide(3)

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    The married put strategy involves purchasing put options while also purchasing the equivalent number of shares in the underlying stock. This provides downside protection if the stock price falls but allows upside participation if it rises. The maximum loss is limited to the cost of the puts plus the difference between the stock purchase price and the put's strike price. The break-even point is the stock purchase price plus the premium paid for the puts. Volatility has a positive effect as it increases the value of the puts, while time decay negatively impacts the value of the puts as they approach expiration.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    30 views3 pages

    Options Guide: Options Strategies: Married Put

    Uploaded by

    Lamico Dellavvoltoio
    The married put strategy involves purchasing put options while also purchasing the equivalent number of shares in the underlying stock. This provides downside protection if the stock price falls but allows upside participation if it rises. The maximum loss is limited to the cost of the puts plus the difference between the stock purchase price and the put's strike price. The break-even point is the stock purchase price plus the premium paid for the puts. Volatility has a positive effect as it increases the value of the puts, while time decay negatively impacts the value of the puts as they approach expiration.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    Options Guide

    firstrade.com/content/en-us/education/guidesoptions/

    Options Strategies: Married Put


    An investor purchasing a put while at the same time purchasing an equivalent number
    of shares of the underlying stock is establishing a "married put" position—a hedging
    strategy with a name from an old IRS ruling. Learn more about married put investing in
    this guide.

    Market Opinion?

    Bullish to Very Bullish

    When to Use?

    The investor employing the bullish option strategy wants the benefits of stock
    ownership (dividends, voting rights, etc.), but has concerns about unknown, near-term,
    downside market risks. Purchasing puts with the purchase of shares of the underlying
    stock is a directional and bullish strategy. The primary motivation of this investor is to
    protect his shares of the underlying security from a decrease in market price. He will
    generally purchase a number of put contracts equivalent to the number of shares held.

    Benefit

    While the investor of the bullish option strategy retains all benefits of stock ownership,
    he has "insured" his shares against an unacceptable decrease in value during the
    lifetime of the put, and has a limited, predefined, downside market risk. The premium
    paid for the put option is equivalent to the premium paid for an insurance policy. No
    matter how much the underlying stock decreases in value during the option's lifetime,
    1/3
    the investor has a guaranteed selling price for the shares at the put's strike price. If there
    is a sudden, significant decrease in the market price of the underlying stock, a put
    owner has the luxury of time to react. Alternatively, a previously entered stop loss limit
    order on the purchased shares might be triggered at a time and at a price unacceptable
    to the investor. The put contract has conveyed to him a guaranteed selling price, and
    control over when he chooses to sell his stock.

    Risk vs. Reward

    Maximum Profit: Unlimited

    Maximum Loss: Limited


    Stock Purchase Price - Strike Price + Premium Paid

    Upside Profit at Expiration: Gains in Underlying Share Value - Premium Paid

    Your maximum profit depends only on the potential price increase of the underlying
    security—in theory, it is unlimited. When the put expires, if the underlying stock closes
    at the price originally paid for the shares, the investor's loss would be the entire
    premium paid for the put.

    Break-Even-Point (BEP)?

    BEP: Stock Purchase Price + Premium Paid

    Volatility

    If Volatility Increases: Positive Effect


    If Volatility Decreases: Negative Effect

    Any effect of volatility on the option's total premium is on the time value portion.

    Time Decay?

    Passage of Time: Negative Effect

    The time value portion of an option's premium, which the option holder has
    "purchased" when paying for the option, generally decreases, or decays, with the
    passage of time. This decrease accelerates as the option contract approaches expiration.
    A market observer will notice that time decay with this bullish option strategy occurs at
    a slightly slower rate than with calls.

    Alternatives before expiration?

    An investor employing the married put can sell his stock at any time, and/or sell his
    long put at any time before it expires. If the investor loses concern over a possible
    decline in market value of his hedged underlying shares, the put option may be sold if it
    has market value remaining.

    Alternatives at expiration?
    2/3
    If the put option expires with no value, no action need be taken, and the investor will
    retain his shares. If the option expires in-the-money, the investor can elect to exercise
    his right to sell the underlying shares at the put's strike price. Alternatively the investor
    may sell the put option, if it has market value, before the market closes on the option's
    last trading day. The premium received from the long option's sale will offset any
    financial loss from a decline in underlying share value.

    Now that you’ve learned more about married put investing, read our guide to protective
    put investing. Get started trading and investing at Firstrade by opening your online
    investment account with us today!

    © 2020 The Options Industry Council. All Rights Reserved. Visit us online at
    www.optionseducation.org

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