What is Married put?

A married put is a trading strategy in which an investor buys a stock and purchases a put option on that same stock simultaneously. This strategy provides the investor with the opportunity to protect their investment from potential losses while still allowing for potential gains. This strategy is also known as a protective put, as the put option serves as a form of insurance against downside risk.

How works Married put?

An investor owns 100 shares of stock in a company. The stock is currently trading at Rs.50 per share, and the investor is concerned that the price may drop in the near future. They decide to purchase a put option contract for the same stock, with a strike price of Rs.45 per share and an expiration date of three months from now.

If the stock price drops below Rs.45 per share before the expiration date, the investor can exercise the put option and sell their shares for the strike price of Rs.45 per share. This limits the investor's losses to Rs.5 per share, rather than the full amount of the drop in the stock price.

On the other hand, if the stock price remains above the strike price of Rs.45 per share, the investor can simply let the put option expire and continue to hold onto their shares. In this case, the investor has paid a premium for the put option but has not incurred any losses.

Benefits of Married put 

The benefits of married put are mentioned below:

• They allow investors to limit their potential losses while still allowing for potential gains in the stock.

• Married puts can be a good strategy for investors who are bullish on a stock but also want to protect themselves against unexpected market events.

• Married puts can be used as a hedging strategy, allowing investors to offset potential losses in their stock position with gains in the put option.

• Married puts can be used as a way to lock in profits on a stock position while still maintaining upside potential.

• They can be less expensive than other hedging strategies, such as buying a protective put option or selling a covered call option.

One important thing to note is that purchasing a put option can be expensive, as it requires paying a premium to the options market. This premium is essentially the cost of the insurance policy, and the amount paid will depend on factors such as the strike price, expiration date, and volatility of the underlying asset.

Despite the cost, a married put can be a useful strategy for investors which investor want to protect against downside risk while still holding onto an asset. It allows investors to limit their losses while participating in potential gains if the asset's price rises. However, as with any investment strategy, it's important to consider the potential risks and costs before deciding.