A married put, or protective put, is a portfolio strategy where an investor buys shares of a stock and, at the same time, enough put options to cover those shares.
The term "protective put" highlights the use of this strategy as a hedge, or insurance, on the invested stock. The buyer of a put protects himself from a drop in the stock price below the strike price of the put. In the event that the put is not exercised (because the stock price is above the strike price), the buyer has lost only the premium he paid for the put.
A put by itself has a limited upside, or potential gain, which occurs when the stock becomes worthless. By "marrying" (matching) puts with shares of the stock, the resulting portfolio has a potentially unlimited upside (due to the theoretically possible gains of the stock), while limiting the downside (due to the protective nature of puts). Of course, one must pay for this through the premium for the put(s) and any other transaction costs.
A simplified example
BOT 100 XYZ @ $36.00
BOT 1 JAN 35 XYZ PUT @ $2.00
Please note that each and all of the above variables (stock price, put strike price, put option expiration date, put price [intrinsic value and/or extrinsic value or both]), commissions, and many more not shown here, are usually carefully considered before applying this strategy.
In order to break even, cost basis plus cost of put plus commissions ($36.00 + $2.00 + $.50 = $38.50). This means that the share price must climb $2.50 before a profit can be realized on the strategy employed.
Since the puts will expire, If one continues to buy puts to hedge the position, one can, over time, effectively increase the costs beyond the probable upward price movement of the stock. In effect, one can over-spend the concept until recovery is highly unlikely. In that sense, repeated use over an indefinitely long amount of time can lead to theoretically unlimited loss.
Derivatives market Derivative (finance) OptionsTermsVanilla options Swaps Forwards and Futures Other derivatives Market issues
Wikimedia Foundation. 2010.
Look at other dictionaries:
Married Put — An option strategy whereby an investor, holding a long position in stock, purchases a put on the same stock to protect against a depreciation in the stock s price. Potential gains or losses from a married put strategy are created from the net… … Investment dictionary
married put — A put option bought at the same time as its underlying securities in order to hedge the price paid for the securities. Bloomberg Financial Dictionary … Financial and business terms
married put strategy — A put and stock are considered to be married if they are bought on the same day, and the position is designated at that time as a hedge. Bloomberg Financial Dictionary … Financial and business terms
Put — An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time. The buyer of a put option estimates that the underlying asset will drop below the… … Investment dictionary
Married... with Children — Intertitle Format Sitcom Created by Michael G. Moye Ron Leavitt … Wikipedia
Married Women's Property Act 1870 — Parliament of the United Kingdom Long title An Act to amend the law relating to the property of married women. Statute book chapter … Wikipedia
Married in Hollywood — Directed by Marcel Silver Written by Leopold Jacobson (operetta Ein Walzertraum) Oscar Straus (operatta Ein Walzertraum) Harlan Thompson (screenplay) Starring … Wikipedia
Married and maiden names — Née redirects here. For other uses, see Née (disambiguation). A married name is the family name adopted by a person upon marriage. When a person assumes the family name of her spouse, the new name replaces the maiden name. The term maiden name is … Wikipedia
Put-in-Bay, Ohio — Infobox Settlement official name = Put in Bay, Ohio other name = native name = nickname = settlement type = Village motto = imagesize = 250px image caption = Put in Bay, Ohio, looking out towards Lake Erie flag size = image seal size = image… … Wikipedia
put down roots — they married and put down roots in Yemen Syn: settle, establish oneself, make one s home, set up home … Thesaurus of popular words