Stock Options Trading
and Technical Analysis Basics

Married Put (Protective Put) -
a Synthetic Long Call Strategy

The Married Put strategy -- also called the Protective Put strategy -- is a form of insurance or hedging that is used with the purchase of the underlying stocks, and can therefore be considered a bullish strategy. It is a type of Synthetic Long Call strategy, that is a strategy that mimics a Long Call option's potential by using different tools.

The Married Put is sometimes compared with Covered Calls due to the similarity in creating the positions, but the two strategies are very different in purpose. While the Covered Call is used primarily to generate monthly income on stocks that are not likely to change in price, the Married Put is used as downward protection or insurance for bullish stocks, hence the use of its alternative name the Protective Put.

The Married Put position is created by buying the underlying stock, and also buying the associated put option at any strike price of your choice. The number of put options and the strike price will depend on how likely and how far you think the stock price is likely to fall. Buying more options and at a lower strike price will give you more protection. However, this protection comes at an increased initial cost due to the higher price paid for the option premiums.

Married Put - Buy Underlying Stock, Buy 1 ATM Put


A Married Put or Protective Put is created by buying the underlying stock and its associated put option(s). It is a Synthetic Long Call, copying a call option's potential, but adding downward protection or insurance for a bullish stock.

The resulting profit of this strategy is pretty similar to simply buying the underlying stock, but with the additional cost of the put option's initial premium (You can think of it as paying a small monthly premium for insurance). It will therefore take a bit more stock movement to earn the same profit as compared to if you only bought the underlying stock. However, if the stock price falls, your profit will decrease and become a loss. This loss will be limited once the stock price falls below the put option's strike price. Once that happens, the put option will become in-the-money and will increase in value the lower the underlying stock price gets, effectively stopping further losses.

When the put option is just about to expire, you can do one of two things depending on the situation. If the put option is in-the-money and has value, it means that the underlying stock price has fallen below the put option's strike price, and you should exit the position entirely to cut your losses. However, if the stock price has climbed and the put option is out-of-the-money, you can keep the stock and let the put option expire worthless. Then as your stock (hopefully) increases in price from month to month, you can keep buying put options with progressively higher strike prices to provide ongoing protection.

The Married Put strategy is different from other bullish strategies such as the Call Backspread or Long Synthetic in that it involves actually buying the underlying stock as opposed to trading in options only. This means that the initial outlay for the Married Put is considerably higher since you need to buy the more expensive underlying stock as well as the associated put options. It also means that your relative profit will be lower (similar to just buying stocks) compared to strategies that only involve options.