how a married put works
a married put works similarly to an insurance policy it is a bullish strategy used when the investor is concerned about potential near term uncertainties in the stock price by owning the stock with a protective put option the investor receives the benefits of stock ownership such as dividends and the right to vote in contrast just owning a call option while equally as bullish as owning the stock does not confer the same benefits of stock ownership a married put behaves synthetically like a long call and as a result will have unlimited profit potential as there is no ceiling on the price appreciation of the underlying stock however profit is always lower than it would be by owning just the stock it s decreased by the cost or premium of the put option reaching breakeven for the strategy occurs when the underlying stock rises by the amount of the options premium paid anything above that amount is profit the benefit of a married put is that there is now a floor under the stock limiting downside risk the floor is the difference between the price of the underlying stock at the time the married put was bought and the strike price of the put put another way when an investor purchased the option if the underlying stock traded exactly at the strike price the loss for the strategy is capped at exactly the price paid for the option a married put is also considered a synthetic long call since it has the same profit profile the strategy is similar to buying a regular call option without the underlying stock because the same dynamic is true for both limited loss unlimited potential for profit the difference between these strategies is simply how much less capital is required to buy a long call a put is considered married when the stock and the put option are bought at the same time the trader would instruct the broker that the stock will be delivered if the put is exercised married put examplelet s say a trader chooses to buy 100 shares of xyz stock for 20 per share and one xyz 17 50 put for 0 50 100 shares x 0 50 50 with this combination they have purchased a stock position with a cost of 20 per share but have also bought a form of insurance to protect themselves in case the stock declines below 17 50 before the put s expiration so say the stock price drops unexpectedly to 15 per share the trader s loss of 5 per share on the long position could be partially offset by the put s profit of 2 50 