Married Put Options Strategy Guide

When it makes sense

• You want to hold shares through an earnings report or other event without the gap risk
• You are sitting on a large gain and want to protect it without selling and triggering taxes
• You are building a new position and want a defined worst case from day one
• Implied volatility is low, so protection is relatively cheap

How it works

Buy (or hold) 100 shares and buy one put, usually 5 to 10% below the current price and one to three months out. At expiration, if the stock is above the strike the put expires worthless and you own the shares with the premium as a sunk cost; if it is below, the put's intrinsic value offsets the shares' loss dollar for dollar, so the position's value is locked at the strike minus the premium. Breakeven is the share cost plus the premium. The combined position has the same payoff as a long call at the put's strike, which is the put-call parity relationship.

Risk and reward

Maximum loss: (share cost minus strike) plus the premium, times 100, the deductible plus the insurance cost. Maximum profit: unlimited, minus the premium. Breakeven: share cost plus premium. The cost of rolling protection continuously is high, typically several percent of the position per year on a liquid large cap and far more on volatile names, which is why most investors hedge around specific windows rather than permanently. Selling a call against the shares (a collar) finances the put at the cost of capping the upside.

Greeks and volatility

Net delta is positive but less than 100 shares: the put's negative delta offsets part of the stock, more so as the stock falls toward the strike. Gamma is positive, so the hedge gets stronger exactly when it is needed. Theta is negative: the put loses time value daily, which is the insurance premium burning off. Vega is positive, so a volatility spike during a sell-off makes the put worth more than its intrinsic value alone and can let you sell it for a gain before expiration.

Managing the trade

If the stock rallies well past the strike, the put is worth little and can be rolled up to a higher strike to raise the floor, or left to expire. If the stock falls through the strike, you can exercise the put to sell the shares at the strike, or sell the put for its intrinsic plus any remaining time value and keep the shares, which is usually better. Exercise is your choice as the put's owner; there is no assignment risk on a long put. Turn the position into a collar by selling an out-of-the-money call when you want the hedge to pay for itself.

What to screen for

Screen married puts by the cost of the put as a percent of the share price (cheaper is better for the same floor), the floor's distance below the stock in percent, days to expiration that cover the event you are hedging, and implied volatility rank. Add a dividend filter if the shares pay one inside the window, and require open interest at the strike so the hedge can be adjusted.

Frequently asked questions

What is the difference between a married put and a protective put?

Only timing. A married put is bought together with the shares; a protective put is added to shares you already own. The position and the payoff are the same.

What is the maximum loss on a married put?

The share cost minus the put strike, plus the premium, times 100. Shares at $120 with a $115 put bought for $3.00 can lose at most $800.

Is a married put the same as a long call?

At expiration, yes: stock plus a put at strike K has the same payoff as a call at strike K plus cash. The married put is how you hold the shares (and any dividends) while keeping a call-like risk profile.

How do I make the hedge cheaper?

Buy a lower strike (a bigger deductible), buy it when implied volatility is low, or sell a call above the stock to create a collar that pays for the put at the cost of capping gains.

Related strategies

All strategy guides