This strategy is applied when trader goes long on the underlying asset i.e. he buys the stock in cash market. He has a bullish view and expects the market to rise in the near future, but simultaneously has the fear of downward movement of the markets. In order to cover his position from vulnerabilities he buys one ATM Put Option of the same underlying asset. Here, a trader wi ..
This strategy works well when you're Bullish that the price of the underlying will not fall beyond a certain level.
This Strategy work when the investor goes long in any stock. He expects the rise in market in future.
Action
Sell Put Option
Buy 250 XYZ Shares, Buy 1 ATM Put Option
Breakeven Point
Strike Price - Premium
Purchase Price of Underlying + Premium Paid
SHORT PUT Vs MARRIED PUT - Risk & Reward
SHORT PUT
MARRIED PUT
Maximum Profit Scenario
Premium received in your account when you sell the Put Option.
Profit = Price of Underlying - Purchase Price of Underlying - Premium Paid
Maximum Loss Scenario
Unlimited (When the price of the underlying falls.)
Max Loss = Premium Paid + Commissions Paid
Risk
Unlimited
Limited
Reward
Limited
Unlimited
SHORT PUT Vs MARRIED PUT - Strategy Pros & Cons
SHORT PUT
MARRIED PUT
Similar Strategies
Bull Put Spread, Short Starddle
Long Call
Disadvantage
• Unlimited risk. • Huge losses if the price of the underlying stock falls steeply.
Cost of the put options eats into profit margin.
Advantages
• Benefit from time decay. • Less capital required than buying the stock outright. • Profit when underlying stock price rise, move sideways or drop by a relatively small account.
