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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 Underlying
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.

Profit Graph for the Married Put Options Trading Strategy

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

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 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.