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Protective puts and collars guard against downward moves in asset prices. Here, investors sacrifice some upside potential for downside protection. Speculation strategies.
The bear put spread improves the breakeven price, which would be $19 with a long put alone, but is now only $19.50 with the spread strategy, or the long put’s strike price minus the net premium.
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.
Mildly bullish trading strategies are options that make money as long as the underlying asset price does not decrease to the strike price by the option's expiration date. These strategies may provide downside protection as well. Writing out-of-the-money covered calls is a good example of such a strategy. The purchaser of the covered call is ...
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
Let’s put this into perspective. If you’re married and your combined taxable income is $85,000 in 2024, you’d fall into the 12% ordinary income tax bracket.
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