A married put strategy in options trading is when an investor buys a put option and buys the underlying asset. This is done to protect the asset’s value from falling below the strike price of the put option.
This strategy is most commonly used by bullish investors on the underlying asset and is looking for downside protection. If you consider using this strategy, it is important to work with a qualified financial advisor to ensure that it is appropriate for your investment goals.
The key to the successful implementation of this strategy is timing. The trader needs to correctly predict when the price of the underlying asset will rise. This can be difficult to do, as markets are constantly fluctuating.
Advantage of this strategy
The main advantage of this strategy is that it provides downside protection to the investor. If the underlying asset price falls, the investor can still sell the asset at the strike price of the put option.
Disadvantages of this strategy
The main disadvantage of this strategy is that it requires the investor to pay two premiums – one for the put option and one for the underlying asset. This can be costly if the market does not favour the investor.
Another disadvantage is that this strategy limits upside potential. If the underlying asset price rises, the investor will only make a profit up to the strike price of the put option.
The goal of this strategy
This strategy aims to protect your downside risk in case the stock price falls. And if the stock price does indeed fall, the put option will increase in value and offset some of the loss from the stock position.
How to use a married put strategy
Here’s a step-by-step guide for traders on how to use a married put strategy in options trading:
1) Decide on the underlying stock you want to buy.
2) Determine the strike price of the put option you will buy. This is the price you are willing to sell the stock if it falls below this level.
3) Select the expiration date of the put option. This is when the option must be exercised, or it expires worthless.
4) Buy the put option. You can do this through a broker or online trading platform.
5) Hold both the put option and stock position until either the stock price rallies above your strike price or the option expire.
6) If you’re still bullish on the stock, you can hold onto both positions and wait for a rebound in prices.
7) If you’re no longer bullish on the stock, you can sell the put option and take your profits.
As you can see, using a married put strategy can be a great way to protect your downside risk in case the stock price falls. But it’s important to remember that this is a short-term strategy and should only be used for positions you’re comfortable with. So always do your homework before executing any trades.
The main reasons why a trader might use a married put strategy
There are two main reasons a trader might use a married put strategy: to protect their downside risk or speculate on a rising market.
To protect downside risk
If you are using this strategy to protect your downside risk, you will want to purchase the put option when the underlying asset’s price is near its 52-week low. This will give you the most downside protection.
To speculate on rising markets
If you are using this strategy to speculate on a rising market, you will want to purchase the put option when the underlying asset’s price is near its 52-week high. This will give you the best chance of profiting from a rising market.
Finally
It is essential to consult with a reliable, experienced and reputable online advisor from Saxo Bank before implementing a married put strategy to get the most accurate advice and guidance. For more information, get it here.