← Strategy LabLesson 7 · 4:07
Protective or married put
Summary
Use a protective put when you own the shares and want a floor under them for a set time, while keeping the rise. You own 100 shares at $100 and buy the $95 put for $1.41 a share, so your worst case on the last day is a loss of $641, and above that the gain has no limit, less the $141. You break even at $101.41.
Key terms
- protective put
- Owning shares and buying a put on those same shares to put a floor under the loss.
- married put
- A protective put bought at the same time as the shares: the same trade with the same shape.
- floor
- The worst result a protected position can reach, set by the put's strike.
- time value
- The rest of an option's price, paid for the chance things get better before the end, and gone by the last day.
- break-even
- The stock price on the last day where you neither make nor lose money: strike plus premium for a call, strike minus premium for a put.
- renewing the put
Check yourself
Answer each question to see why the right answer is right.
1. You own 100 XYZ at $100 and buy the $95 put for $1.41 a share. How much have you paid in all?
2. What is your worst case on the last day with this protective put?
3. Where does this protective put break even?
4. XYZ ends at $90 on the last day. What is your result?
5. What is a married put?
Finished the video and the quiz? .