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A protective option or married option is a financial transaction in which the holder of securities buys a type of financial options contract known as a "call" or a "put" against stock that they own or are shorting. The buyer of a protective option pays compensation, or "premium", for this transaction, which can limit losses on their stock position.
Combines protective puts with covered calls sold on same underlying stocks. Put protects downside while call premium offsets cost of buying put. Gains capped if shares called away.
The married put (also known as a protective put) is a bullish strategy and consists of the purchase of a long stock and a long put option. The married put has limited downside risk provided by the purchased put option and a potential return which is infinite. Calculations for the Married Put Strategy are: Net Debit = Stock Price + Put Ask Price
Examples of neutral strategies are: Guts - buy (long gut) or sell (short gut) a pair of ITM (in the money) put and call (compared to a strangle where OTM puts and calls are traded). Butterfly - a neutral option strategy combining bull and bear spreads. Long butterfly spreads use four option contracts with the same expiration but three different ...
Level 1: Enables traders to write covered calls, buy protective puts and write cash-secured puts. However, margin approval is required for writing puts. Level 2: ...
Another very common strategy is the protective put, in which a trader buys a stock (or holds a previously-purchased long stock position), and buys a put. This strategy acts as an insurance when investing long on the underlying stock, hedging the investor's potential losses, but also shrinking an otherwise larger profit, if just purchasing the ...