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Showing results for tags 'option strategy'.
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A frequently mentioned strategy for acquiring shares of a desirable stock is that of selling naked puts and waiting to have the stock assigned. Advocates of this strategy argue that this is a great way to buy a stock at a discount price. While there is some potential value to this strategy, it is unclear that this approach is always a sound way to acquire a stock. Let’s look at a case that was recently profiled in the financial press to investigate the pros and cons of acquiring stock by selling naked puts. Astex Pharmaceuticals Inc (ASTX) is a popular stock with a price that has been in a steep decline since the beginning of May. Recently the stock price appears to have bottomed out near $4.50 per share. On June 11, with ASTX stock trading at $4.60 per share, a single order to sell 5000 contracts of the Jul 4.5 puts was filled at $.32 per share. There was no evidence that this was part of a spread order that would have hedged the short puts. Ostensibly, this order was placed by a put seller (firm or individual) that has some potential interest in owning 500,000 shares of ASTX stock. Positive side of this strategy The arguments in favor of this trade point out that if the stock price is above $4.50 at the July expiration date, the short naked puts will expire worthless and the seller keeps the $.32 per share. On the other hand, if the stock price is below $4.50, the seller will be assigned the stock and thereby acquire 500000 shares at the discounted price $4.18 per share [4.50 - .32 = 4.18]. An important point about this stock acquisition strategy is that while the put seller does not need to have all of the cash available to purchase the stock prior to the options expiration date, there will still be a substantial margin requirement imposed as soon as the puts are sold. Negative side of this strategy To see the negative side of this strategy of selling naked puts, suppose that ASTX stock has bottomed out near $4.50 a share and rises to $5.00 or higher by the July options expiration date. The put seller may regret not having decided to buy 500000 shares of stock at $4.60 per share while simultaneously selling the Jul 5 calls for $.35 per share. That combination represents a discounted stock price of $4.25 per share [4.60 - .35 = 4.25], and if the stock price is above $5.0 at the July options expiration, the stock will be called away for a total profit of $.75 per share [.35 + (5.00 -4.60) = .75]. On the other hand, if the stock price begins to fall, it may be possible to roll the short Jul 5 calls down to the Jul 4.5 calls so as to receive a total of say $.45 from the two short call transactions, thereby reducing the cost basis of the ASTX stock down to $4.15 per share [4.60 - .45 = 4.15]. Conclusion The primary point of this discussion is if you are bullish on a stock that is near a bottom in price, you may be better off buying the stock than going through the acquisition process of selling naked puts. If you are correct in your assessment that the stock is ready to start moving up, you are likely to achieve a better return by simply buying the stock and selling out-of-the-money calls. Even if the stock continues to fall a bit lower, your cost basis for stock ownership may be about the same as that of the put selling strategy. ************************************ Dr. Olmstead can be found at http://www.olmsteadoptions.com, an on-line options trading site, centered around options education and trading strategies he’s developed. He is Professor of Applied Mathematics at Northwestern University, author of the popular and highly-praised options book, Options for the Beginner and Beyond (2006) and former chief strategist for The Options Professor on-line newsletter, distributed by Zacks.com and Forbes.com. -
A major barrier to option trading for the average retail investor is the complete lack of relevant and pertinent information available regarding the intricacies of options. Anyone that has attempted to learn option trading from scratch knows how painstaking a process it can be. Outside of the "online training courses," which typically cost upwards of $1000; the web is somehow void of any option related study materials beyond the absolute basics found on Investopedia and similar websites. (I find it ridiculous that step by step tutorials can be found on how to build a nuclear generator in your garage, yet its nearly impossible to find info on intermediate to advanced combination strategies?!) Intent on learning all the ins and outs of options but lacking the funds to pay for an expensive class, I was led to a place typically dismissed by anyone under the age of 30, the library. Over the past 36 months, I have read every option related book in my state library system, and have scoured online book retailers for any other texts recommended by astute bloggers and other investors I respect. Through much trial and error, I have come to find what works and what doesn't when applying many of the option strategies and theories out there. While no trading vehicle is perfect, it is my belief that options are the best way to trade in this highly volatile, up and down market with which we must now contend. Thus, it is my intention to provide insight and commentary into a world often described as too risky for the average retail investor. To this end, I recently published what I hope to many informative articles on Options trading and welcome everyone take a look, let me know what you think and hopefully foster some fruitful discussions regarding the many intricacies of options trading. This initial article provides an in-depth analysis of a mistake made by many new options traders, paying way to high of a premium for options in the dates just leading upto qtr earnings when Implied Volatility is highest as I demonstrate in the article. In addition, I show how steps can be taken to anticipate and possibly profit from these consistent IV spikes.
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Traders who implement a conversion strategy are taking advantage of overpriced assets by instantly liquidating (arbitraging) them to fair market value. The technique involves selling and purchasing a put and a call option, at-the-money, while going long on the underlying asset. Traders can earn a small, risk-free profit when converting options, as long as the option's strike prices exceed the prices of the associated underlying asset. Moneyness Review for Puts and Calls Call Options: In-The-Money (ITM) = Strike price (less than) Market Price Out-of-The Money (OTM) = Strike price (more than) Market Price Put Options: In-The-Money (ITM) = Strike Price (more than) Market Price Out-of-The Money (OTM) = Strike Price (less than) Market Price Both Put and Call Options At-The-Money (ATM) Strike Price (equals) Market Price How to Carry Out A Conversion Strategy Disney stock is worth $100 (market price) in June. 1) Trader buys 100 shares of Disney stock. 2) Trader buys the put option: DISJul100($3) - 100 shares of Disney stock - Strike Price $100, at-the-money (ATM), expiring in 30 days - Premium Cost of $3 3) Trader sell the call option: DISJul100($4) - 100 shares of Disney stock - Strike Price $100, at-the-money (ATM), expiring in 30 days - Premium Cost of $4 4) Trader pays $9900 to enter the conversion. [$9900 (paid for shares) + $400 (received from call) - $300 (paid for put)] Total cost to enter the market: $9900 Result one: Disney stock rises (rallies) to $110 in July. a) The put option purchased expires worthless. (OTM) b) The call option sold expires ITM. c) The investor who bought the trader's call option exercises his or her right to buy 100 shares at $100. d) The trader uses the 100 shares to cover the assignment and receives $10000 from the buyer. e) Trader gains a total of $100 after the subtracting the cost to enter the market from the funds collected from the call option. [$10000 (received from call buyer) - $9900 (cost to enter market)] Result two: Disney stock falls to $90 in July. a) The call option sold expires worthless. (OTM) b) The put option purchased expires ITM. c) The trader exercises his or her right to sell 100 shares at $100, receiving $10000 from the buyer for the long shares purchased when entering the trade. d) The trader's profit totals $100 after the subtracting the cost to enter the market from the funds collected from the put option. [$10000 (received from put seller) - $9900 (cost to enter market)] Calculating The Risk-Free Profit In A Conversion Investors earn instant profits when correctly entering a conversion trade. Market conditions will not matter at the time of expiration, as the synthetic long position covers losses and cancels gains on the long trade. In order to achieve instant profits, the options' strike prices must exceed the difference in the price of the underlying asset less the cost to enter the market. [$100 = $100 (options' strike prices) - $100 (cost to enter market) + $100 (asset price)] Advantages and Disadvantages of Implementing a Conversion : Pluses: The upside to this type of strategy is that the investor will always make a small profit in any market situation, risk-free. The trader is just converting the overpriced options to fair market value. Minuses: There is no downside in carrying out a reversal strategy, since it risk-free. However, traders must be able to recognize overpriced options of which values are higher than their associated underlying asset.
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Traders who implement a reversal strategy are taking advantage of under priced assets by instantly liquidating (arbitraging) them to fair market value. The technique involves selling and purchasing a put and a call option, at-the-money, while short selling the underlying asset. Traders can earn a small, risk-free profit when using a reversal strategy, as long as the two under priced option's values are lower than their associated underlying asset. Moneyness Review for Puts and Calls Call Options: In-The-Money (ITM) = Strike price (less than) Market Price Out-of-The Money (OTM) = Strike price (more than) Market Price Put Options: In-The-Money (ITM) = Strike Price (more than) Market Price Out-of-The Money (OTM) = Strike Price (less than) Market Price Both Put and Call Options At-The-Money (ATM) Strike Price (equals) Market Price How to Carry Out A Reversal Strategy Disney stock is worth $100 (market price) in June. 1) Trader short sells 100 shares of Disney stock. 2) Trader sells the put option: DISJul100($4) - 100 shares of Disney stock - Strike Price $100, at-the-money (ATM), expiring in 30 days - Premium Cost of $4 3) Trader buys the call option: DISJul100($3) - 100 shares of Disney stock - Strike Price $100, at-the-money (ATM), expiring in 30 days - Premium Cost of $3 4) Trader receives a $10100 credit when entering the market. [$10000 (received from short sale) + $400 (received from put) - $300 (paid for call)] Total cost to enter the market: -$10100 Result one: Disney stock rises (rallies) to $110 in July a) The put option sold expires worthless. (OTM) b) The call option purchased expires ITM. c) The trader exercises his or her right to buy 100 shares at $100, paying 10000 to the seller. d) The trader uses the 100 shares to cover the short sale. e) Trader gains a total of $100 after keeping the remainder of the credit earned when entering the market. [$10100 (credit) - $10000 (paid for shares] Result two: Disney stock falls to $90 in July. a) The call option purchased expires worthless. (OTM) b) The put option sold expires ITM. c) The investor who bought the trader's put option exercises his or her right to sell 100 shares at $100. The trader pays $10000 to the buyer, and receives 100 Disney shares. d) The trader uses the 100 shares to cover the short sale. e) The trader makes a total profit of $100 after keeping the remainder of the credit earned when entering the market. [$10100 (credit) - $10000 (paid to cover put)] Calculating The Risk Free Profit In A Reversal Strategy Investors earn instant profits when correctly entering a reversal trade. Market conditions will not matter at the time of expiration, as the synthetic long stock position covers losses and cancels gains on the short sale. In order to achieve instant profits, the price of the underlying asset must exceed the difference in premiums collected less the options' strike prices. [$100 = $100 (asset price) + $100 (premium credit) - $100 (options' strike prices)] Advantages and Disadvantages of Implementing a Reversal Strategy: Pluses: The upside to this type of strategy is that the investor will always make a small profit in any market situation, risk-free. The trader is just arbitraging the under priced options to fair market value. Minuses: There is no downside in carrying out a reversal strategy, since it risk-free. However, traders must be able to recognize under priced options of which values are lower than their associated underlying asset.
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Traders who implement a short box strategy are taking advantage of overpriced assets by instantly liquidating (arbitraging) them to fair market value. The technique involves selling both a bull call and bear put spread at the same time, using options with parallel strike prices and expirations. Traders can earn risk-free profit, as long as the credit received when entering the market exceeds the expiration value of the box. Moneyness Review for Puts and Calls Call Options: In-The-Money (ITM) = Strike price (less than) Market Price Out-of-The Money (OTM) = Strike price (more than) Market Price Put Options: In-The-Money (ITM) = Strike Price (more than) Market Price Out-of-The Money (OTM) = Strike Price (less than) Market Price Both Put and Call Options At-The-Money (ATM) Strike Price (equals) Market Price How To Set Up A Short Box Strategy Disney stock is worth $55 (market price) in July. Selling the Bull Call Spread 1) The trader writes (sells) a call option: DISAug50($7) - 100 shares of Disney stock - Strike Price $50 (ITM), expiring in 30 days - Premium Cost of $7 2) The trader buys a call option: DISAug60($1.50) - 100 shares of Disney stock - Strike Price $60 (OTM), expiring in 30 days - Premium Cost of $1.50 3) The trader receives a credit of $550 when entering the bull call spread. [$700 (received from call sale) - $150 (paid for call purchase)] Selling the Bear Put Spread 1) Trader writes (sells) a put option: DISAug60($7) - 100 shares of Disney stock - Strike Price $60 (ITM), expiring in 30 days - Premium Cost of $7 2) Trader buys a put option: DISAug50($2) - 100 shares of Disney stock - Strike Price $50 (OTM), expiring in 30 days - Premium Cost of $2 3) The trader receives a credit of $500 when entering the bear put spread. [$700 (received from put sale) - $200 (paid for put purchase)] Total (Short Box) credit when entering the market $1050: [$550 (credit from bull spread) + $500 (credit from bear spread)] Computing Expiration Value To earn risk-free profit, the credit received when entering the market must exceed the expiration value of the box. The expiration value is simply the difference between the higher and lower strike prices, multiplied by 100. This example's box spread expiration value is $1000 [$1000= $60 (high) - $50 (low) X 100], which is lower than the $1050 credit when entering the market. Result one: Disney stays at $55 (ATM) in August. a) Both the put and call options purchased expire worthless (OTM). b) The put option sold is ITM The buyer exercises his or her right to sell the trader 100 shares at $60. The trader pays $6000 to the seller. c) The call option sold is ITM. The buyer exercises his or her right to buy shares at $50 from the trader, who sells the 100 shares and receives $5000 from the buyer. d) The trader's profit is $50 after adding the credit received when entering the market from the loss. [$50 = $5000 (received from call buyer) - $6000 (paid to put buyer) + $1050 (credit)] Result two: Disney rallies to $60 in August. a) Both the put and call options purchased and the put option sold expire worthless (OTM). b) The call option sold is ITM. c) The trader buys 100 Disney shares in the open market to cover the sale, paying $6000. d) The buyer exercises his or her right to buy shares at $50 from the trader, who sells the 100 shares and receives $5000 from the buyer. e) The trader's profit is $50 after adding the credit received when entering the market from the loss. [$50 = $5000 (received from call buyer) - $6000 (paid for shares) + $1050 (credit)] Result three: Disney falls (crashes) to $50 in August. a) Both the put and call options purchased and the call option sold expire worthless (OTM). b) The put option sold is ITM. c) The buyer exercises his or her right to sell the trader 100 shares at $60. The trader pays $6000 to the seller. d) The trader sells 100 Disney shares in the open market at $50 and receives $5000. e) The trader's profit is $50 after adding the credit received when entering the market from the loss. [$50 = $5000 (received from put buyer) - $6000 (share sale) + $1050 (credit)] Advantages and Disadvantages of Implementing a Small Box Strategy: Pluses: The upside to this type of strategy is that the investor will always make a small profit in any market situation, risk-free. The trader is just arbitraging the overpriced options to fair market value. Minuses: There is no downside in carrying out a short strategy, since it risk-free. However, traders must be able to quickly recognize options with overpriced expiration values.
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A trader who implements a synthetic short stock (split strikes) is betting that an asset's value will fall. The technique involves buying the same number of call and put options for an underlying asset with the same expiration. Both the profit potential and the risk involved when using this strategy is unlimited. An investor who enters a synthetic short stock (split strikes) strategy can gain large profits if the market crashes but can also incur big losses if it rallies. Moneyness Review for Puts and Calls Call Options: In-The-Money (ITM) = Strike Price (less than) Market Price Out-of-The Money (OTM) = Strike Price (more than) Market Price Put Options: In-The-Money (ITM) = Strike Price (more than) Market Price Out-of-The Money (OTM) = Strike Price (less than) Market Price Both Put and Call Options At-The-Money (ATM) Strike Price = (equals) Market Price How to Implement a Synthetic Short Stock (Split Strikes) Strategy Disney stock is worth $40 (market price) in June. 1) Trader sells a call option: DISJul45($1) - 100 shares of DIS stock - Strike Price $45, out-of-the-money (OTM), expiring in 30 days - Premium Cost of $1.00 2) Trader buys a put option: DISJul35($0.50) - 100 shares of DIS stock - Strike Price $35, out-of-the-money (OTM), expiring in 30 days - Premium Cost of $1.00 3) The trader receives a $50 credit when entering the market. [$100 (received from sale) - $50 (paid for put)] Total cost to enter the market: -$50 Result one: Disney stock falls (moderately) to $35 in July. a) The call sold option expires worthless. (OTM) b) The put option purchased expires worthless. (OTM) c) The trader gains a total of $50 after keeping credit taken when entering the market. Result two: Disney stock rises (rallies) to $60 in July. a) The put option expires worthless. (OTM) b) The call option sold expires ITM. The investor who bought the trader's call option exercises his or her right to buy 100 shares at $45. c) The trader buys 100 Disney shares in the open market, paying $6000. d) He or she then sells them to the buyer, receiving $4500. e) The trader loses a total of $1450 after subtracting the premium credit taken when entering the market. [$1450 = $50 (credit to enter market) - $1500 (loss from call)] Result three: Disney stock falls (crashes) to $20 a) The call option expires worthless. (OTM) b) The put option expires ITM, so the trader buys 100 Disney shares in the open market, paying $2000 to cover the sale. c) The trader exercises his or her right to sell the 100 shares at $35 to the writer and receives $3500 from the seller. d) The trader gains a total of $1550 after adding the premium credit taken when entering the market. [$1550 = $1500 (profit from put) + $50 (credit to enter market)] Advantages and Disadvantages of Implementing a Synthetic Short Stock (Split Strikes): Pluses: The upside to this type of strategy is that the investor will always make a profit in a bear market, which can lead to unlimited profit potential if prices crash. The trader also can enter the market without paying cash. He or she receives a premium credit, keeping it when the index call option expires worthless, and using the credit to offset losses, if the asset's value rises. Minuses: The downside in using a synthetic short stock (split strikes) is that the method exposes the investor to unlimited risk. If the underlying asset's market value rallies, then he or she can lose large amounts of money, since an asset's price can theoretically rise as much as the demand permits.
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Traders who implement a synthetic short call strategy are betting that the market price of an option's underlying asset will fall. The technique involves short selling owned assets and selling a put option for the amount of shares owned. The loss-risk in this strategy is unlimited, if the market price of the underlying asset rises. Traders who employ a synthetic short call strategy use assets as leverage to earn a fixed premium credit, received from the put buyer when entering the market. Moneyness Review for Puts Out-of-The Money (OTM) = Strike Price (less than) Market Price In-The-Money (ITM) = Strike Price (more than) Market Price At-The-Money (ATM) = Strike Price (equals) Market Price How to Carry out a Synthetic Short Call Strategy Disney stock is worth $50 (market price) in June. 1) Trader short sells 100 shares of Disney stock 2) Trader sells the put option: DISJul50($3) - 100 shares of Disney stock - Strike Price $50, at-the-money (ATM), expiring in 30 days - Premium Cost of $3 3) Trader receives a $300 credit when entering the market [$300 (received from put buyer)] Total cost to enter the market: -$300 Result one: Disney stock remains at $50 in July a) The put option sold expires worthless (OTM). b) The short sale realizes no gain. c) The trader's profits total $300 after keeping the credit earned when entering the market. Result two: Disney stock falls to $40 in July. a) The short sale realizes a $1000 gain, and the trader receives $1000. b) The put option sold expires ITM. c) The investor who bought the trader's put option exercises his or her right to sell 100 shares at $50. The trader pays $5000 to the buyer, and receives 100 Disney shares. d) The trader immediately sells the 100 shares in the open market and receives $4000. e) The trader makes a total profit of $300 after keeping the credit earned when entering the market. [$300 = $4000 (received for 100 shares) + $1000 (gain from short sale) + $300 (credit to enter market) - $5000 (paid for 100 shares)] Result three: Disney stock rises to $60 in July. a) The short sale realizes a $1000 loss, and the trader pays $1000. b) The put option sold expires worthless (OTM) c) The trader loses $700 after adding the credit earned when entering the market. [-$700 = $300 (credit to enter market) - $1000 (loss from short sale) ] Advantages and Disadvantages in Carrying out a Synthetic Short Call Strategy Pluses: The upside to this type of strategy is that the investor will gain limited profits if the put option expires at-the-money or expires at any price below it, independent of how low the market drops. The synthetic short call strategy also earns the trader a credit when entering the market, which can be used to offset losses if the underlying asset's market price rallies. Minuses: The downside in using a synthetic short call is that the method has an unlimited loss-risk potential. The short sale exposes the trader to high risk when the market rallies, since any asset's market price could theoretically rise as much as demand permits. The method also limits the trader's profit potential to only what he or she received when entering the market. The investor can not profit from the short sale if the market crashes because the put option would offset any gains from the sale.
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Traders who sell index puts are betting that the market price of the index's underlying value will go up. The strategy involves selling a put that's associated with a stock market index. The index plays the same role as an underlying asset does in normal options trading. Investors settle their exercised index options in cash, so there are no assignments of assets. When traders sell index puts, they forecast that the option will expire OTM and worthless. The most a trader can gain is limited to the amount that he or she receives in premiums. At the same time, there is no limit to how much an investor can lose, since the potential decline of any stock index is infinite. Definition of ATM, ITM and OTM for Puts There are three ways to define the relationship between an option's strike price and the market price of the underlying index. Understanding the differences between the terms is important because the risks involved in selling index puts depend on these terms at the time of the sale and when settling for cash. ATM - At The Money: The underlying index's market price equals the option's strike price. Example: - Put Option DJX400 (strike price $400) - Index DJX is trading at $400 ITM - In The Money: The underlying index's market price is less than option's strike price. Example: - Put Option DJX400 (strike price $400) - Index DJX is trading at $380 OTM - Out of The Money: The underlying index's market price is more than option's strike price. Example: - Put Option DJX400 (strike price $400) - Index DJX is trading at $420 How to Sell Index Puts (ATM) The DJX is worth $400 (market price) 1) Trader writes (sells) an index put option: DJX400($4) - One Option with a contract multiplier of $100 - Strike Price $400 (ATM) - Premium Cost of $4 2) Trader receives $400 in premiums (100 x $4 (premium cost)). Result one: DJX hits $380 (ITM). The put buyer exercises his or her right to sell 100 shares at $40. The difference between the option's strike price and the DJX is $20 (Option $400 - DJX $380). Since there is no assignment of assets, the trader settles in cash for $2000 (100 x $20). The investor's total loss is reduced to $1600 after adding premiums received. Result two: DJX hits $420 (OTM). The put buyer lets the option expire, does not exercise his or her right to sell and loses the amount of premiums paid. In this example, the writer would profit $400 (premiums paid). Advantage and Disadvantage of Selling Index Puts: Pluses: The upside to selling index puts is that the investor can enter the market without paying cash. They in fact are issuing an IOU, hoping that the obligation will expire worthless. Minuses: The downside is that a trader's profits are limited to only the premiums received from the put buyer. Also, the potential loss risk in selling puts is unlimited, as an index can decline up to a zero value.
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Traders who enter married put strategies want to own an option's underlying asset, but are unsure if the asset's bullish trend will continue in the short-term. The strategy involves buying a put option ATM and buying the same number of regular shares of the underlying asset. When traders buy the put option, they are essentially purchasing insurance. The most a trader can lose is limited to the amount that he pays in premiums and the difference in the share price on paper. At the same time, there is no limit to how much an investor can gain, since the potential rise of any underlying asset is infinite. Definition of ATM, ITM and OTM for Married Puts There are three ways to define the relationship between a put option's strike price and the market price of its underlying asset. Understanding the differences between the terms is important because the risks involved in buying puts depend on these terms at the time of the purchase and when assigning assets. ATM - At The Money: The underlying asset's market price equals the option's strike price. Example: - Put Option XYZJan52 (strike price $52) - XYZ is trading at $52 ITM - In The Money: The underlying asset's market price is less than option's strike price. Example: - Put XYZJan52 (strike price $52) - XYZ is trading at $30 OTM - Out of The Money: The underlying asset's market price is more than option's strike price. Example: - Put Option XYZJan52 (strike price $52) - XYZ is trading at $70 How to Enter a Married Put Strategy (ATM) XYZ is worth $52 (market price) 1) Trader buys 100 shares of XYZ preferred stock and pays $5200. 2) Trader buys the put option: XYZJan50($2) - 100 shares of XYZ stock - Strike Price $50 (ATM), expiring in 30 days - Premium Cost of $2 3) Trader pays $200 in premiums (100 x $2 (premium cost)). Result one ITM: XYZ hits $30 (ITM) Any drop in price below $50 puts the option ITM. If this happens, the trader will exercise the right to sell his or her 100 shares for $50 and will receive $5000 from the put seller. The trader's total loss will equal the premiums paid ($200) plus the difference between the asset's purchase price and its selling price (Paid $5200 - Received $5000 = $200). In this case, the total loss is $400. Result two OTM: XYZ hits $70 (OTM) Any rise in price above $50 puts the option OTM. If this happens, the trader will not exercise the right to sell his or her 100 shares. His or her underlying asset will have a paper value of $1800 (100 (shares) x $70 (market price). The $200 in premiums paid reduces the trader's profit to $1600. Result three ATM: XYZ hits $52 (ATM) If XYZ remains at $52 when the put option expires, the trader will not exercise the right to sell his or her 100 shares, but loses the $200 in premiums paid (insurance). Advantage and Disadvantage of Implementing a Married Put Strategy: Pluses: The upside to this type of strategy is that there are no limits to the amount of profit an investor can make. If the underlying asset's market value takes off, the investor's shares will grow on paper. Another advantage in the married put strategy is that the cost of insurance (buying a put) is very low. As a result, a trader can go long and pay only a small fixed premium if things go wrong. Minuses: The downside in implementing a married put strategy is that the investor loses when the value of the option fall ITM. Although, the most an investor can lose is limited.
