The Married Put is an option strategy in which the options trader buys an at-the-money put option while simultaneously buying an equivalent number of shares of the underlying stock.
Long 100 Underlying, Buy 1 ATM Put
A married put strategy is usually employed when the options trader is bullish on a stock, wants the benefits of stock ownership (dividends, voting rights, etc.), but wary of uncertainties in the near term.
Unlimited Profit Potential
As its profit potential is the same as a long call's, the married put is also known as a synthetic long call.
Unlimited
Profit achieved when: Price of Underlying > Purchase Price of Underlying + Premium Paid
Profit = Price of Underlying - Purchase Price of Underlying - Premium Paid
Limited Risk
Premium Paid + Commissions Paid
Loss occurs when: Price of Underlying <= Strike Price of Long Put
Breakeven point
Purchase Price of Underlying + Premium Paid
Example
An options trader is very bullish on XYZ stock but worried about near term uncertainties. He establishes a married put position by purchasing shares of XYZ stock trading at $52 in June while simultaneously buying SEP 50 put options trading at $2 to protect his share purchase.
Maximum loss occurs when the stock price dive to $50 or below at expiration. With the SEP 50 puts in place, even if the stock price dive to $30, he will still be able to sell his holdings for $50. Therefore, his maximum loss is limited $2 in paper loss + $2 in premium paid for the options = $4.
On the upside, there is no limit to the profits should the stock price head north. Suppose the stock price goes up to $70, his profit will be $18 in paper gain less $2 paid for the put protection = $16.
However, if the stock price remain unchanged at expiration, he will still lose $2 in premium paid for the put insurance.
Commissions
These examples exclude commissions and fees. Include all transaction costs when evaluating the profit or loss of a position.