13/12/2019 Married Put Definition

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OPTIONS & DERIVATIVES TRADING OPTIONS TRADING STRATEGY & EDUCATION

Married Put
REVIEWED BY GORDON SCOTT, CMT | Updated Sep 10, 2019

TABLE OF CONTENTS
What Is a Married Put?
How a Married Put Works
Married Put Example
When to Use a Married Put
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What Is a Married Put?

A married put is the name given to an options trading strategy where an investor, holding a
long position in a stock, purchases an at-the-money put option on the same stock to protect
against depreciation in the stock's price.

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The benefit is that the investor can lose a small but limited amount of money on the stock in
the worst scenario, yet still participates in any gains from price appreciation. The downside is
that the put option costs a premium and it is usually significant.

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A married put may be contrasted with a covered call.

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KEY TAKEAWAYS
This option strategy protects an investor from drastic drops in the price of the
underlying stock.
The cost of the option can make this strategy prohibitive.
Put options vary in price depending on the volatility of the underlying stock.
The strategy might work well for low-volatility stocks where investors are worried
about a surprise announcement that would drastically change the price.

NYIF Instructor Series: Married Put

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How a Married Put Works

A married put works similarly to an insurance policy for investors. It is a bullish strategy used
when PART
the investor
OF is concerned about potential near-term uncertainties in the stock. By
owning Options Trading
the stock Guide put option, the investor still receives the benefits of stock
with a protective
ownership, such as receiving dividends and having the right to vote. In contrast, just owning
a call option, while equally as bullish as owning the stock, does not confer the same benefits
of stock ownership.

Married Put

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13/12/2019 Married Put Definition

Both a married put and a long call have the same unlimited profit potential, as there is no
ceiling on the price appreciation of the underlying stock. However, profit is always lower
than itPART
would
OF be for just owning the stock, decreased by the cost or premium of the put
optionOptions Trading
purchased. Guide
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 downside
risk. The floor is the difference between the price of the underlying stock, at the time of the
purchase of the married put, and the strike price of the put. Put another way, at the time of
the purchase of the option, if the underlying stock traded exactly at the strike price, the loss
for the strategy is capped at exactly the price paid for the option.

A married put is also considered a synthetic long call, since it has the same profit profile. The
strategy has a similarity to buying a regular call option (without the underlying stock)
because the same dynamic is true for both: limited loss, unlimited potential for profit. The
difference between these strategies is simply how much less capital is required in simply
buying 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 x $0.50 = $50). With this combination, they have
purchased a stock position with a cost of $20/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. For
a put to be considered "married," the put and the stock must be bought on the same day,
and the trader must instruct their broker that the stock they have just purchased will be
delivered if the put is exercised.

When to Use a Married Put

Rather than a profit-making strategy, a married put is a capital-preserving strategy. Indeed,
the cost of the put portion of the strategy becomes a built-in cost. The put price reduces the
profitability of the strategy, assuming the underlying stock moves higher, by the cost of the
option. Therefore, investors should 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 benefit from knowing that their losses in the stock are limited. This can give
them confidence as they learn more about different investing strategies. Of course, this
protection comes at a cost, which includes the price of the option, commissions, and
possibly other fees.

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Related Terms
PART OF
Synthetic Call
Options Definition
Trading Guide
A synthetic call is an options strategy where an investor, holding a long position, purchases a put on
the same stock to mimic a call option. more

How a Protective Put Works

A protective put is a risk-management strategy using options contracts that investors employ to guard
against the loss of owning a stock or asset. more

Whichever Way a Stock Moves, A Strangle Can Squeeze Out a Profit

A strangle is a popular options strategy that involves holding both a call and a put on the same
underlying asset. It yields a profit if the asset's price moves dramatically either up or down. more

Synthetic Put Definition

A synthetic put is an options strategy that combines a short stock position with a long call option on
that same stock to mimic a long put option. more

Collar Definition
A collar, commonly known as a hedge wrapper, is an options strategy implemented to protect against
large losses, but it also limits large gains. more

Zero Cost Collar Definition

A zero cost collar is an options strategy used to lock in a gain by buying an out-of-the-money (OTM)
put and selling a same-priced OTM call. more

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