Married Put

The Married Put is an option strategy in which the options trader buys an at-the-money put option while simultaneously buying an equivalent number of shares of the underlying stock.

Married Put Construction
Long 100 Shares
Buy 1 ATM Put

A married put strategy is usually employed when the options trader is bullish on a stock, wants the benefits of stock ownership (dividends, voting rights, etc.), but wary of uncertainties in the near term.

Unlimited Profit Potential

As its profit potential is the same as a long call's, the married put is also known as a synthetic long call.

The formula for calculating profit is given below:

  • Maximum Profit = Unlimited
  • Profit Achieved When Price of Underlying > Purchase Price of Underlying + Premium Paid
  • Profit = Price of Underlying - Purchase Price of Underlying - Premium Paid
Married Put Payoff Diagram
Graph showing the expected profit or loss for the married put option strategy in relation to the market price of the underlying security on option expiration date.

Limited Risk

The formula for calculating maximum loss is given below:

  • Max Loss = Premium Paid + Commissions Paid
  • Max Loss Occurs When Price of Underlying <= Strike Price of Long Put

Breakeven Point(s)

The underlier price at which break-even is achieved for the married put position can be calculated using the following formula.

  • Breakeven Point = Purchase Price of Underlying + Premium Paid

Example

An options trader is very bullish on XYZ stock but worried about near term uncertainties. He establishes a married put position by purchasing shares of XYZ stock trading at $52 in June while simultaneously buying SEP 50 put options trading at $2 to protect his share purchase.

Maximum loss occurs when the stock price dive to $50 or below at expiration. With the SEP 50 puts in place, even if the stock price dive to $30, he will still be able to sell his holdings for $50. Therefore, his maximum loss is limited $2 in paper loss + $2 in premium paid for the options = $4.

On the upside, there is no limit to the profits should the stock price head north. Suppose the stock price goes up to $70, his profit will be $18 in paper gain less $2 paid for the put protection = $16.

However, if the stock price remain unchanged at expiration, he will still lose $2 in premium paid for the put insurance.

Note: While we have covered the use of this strategy with reference to stock options, the married put is equally applicable using ETF options, index options as well as options on futures.

Commissions

For ease of understanding, the calculations depicted in the above examples did not take into account commission charges as they are relatively small amounts (typically around $10 to $20) and varies across option brokerages.

However, for active traders, commissions can eat up a sizable portion of their profits in the long run. If you trade options actively, it is wise to look for a low commissions broker. Traders who trade large number of contracts in each trade should check out OptionsHouse.com as they offer a low fee of only $0.15 per contract (+$4.95 per trade).

Similar Strategies

The following strategies are similar to the married put in that they are also bullish strategies that have unlimited profit potential and limited risk.

Protective Put
Long Call
Call Backspread

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