Do you worry about falling stock prices when you invest in stocks?
Do you wish for ways to protect your investment from falling prices?
We explain what a Married Put is, and how it provides a simple protection to your stock value with a simple Put contract. We also show you a list of the best Married Put opportunities to invest in right now, so you can feel more comfortable with long-term stock investments.
What Is a Married Put?
A Married Put is the combination of buying stocks and a long Put contract to hedge the stock value against falling stock prices. If the market crashes, the Put owner can sell stocks with minimal losses.
Let's use GOOGL as an example. By purchasing 100 stocks of GOOGL, we profit from a rise in stock prices, and lose when the price falls.
To protect our positions against downtrends, we can buy an ATM Put option to hedge. The long Put works as an insurance we buy against falling prices, where the contract becomes more valuable when the stock price goes down.
The combination of 100 stocks and a long Put is a Married Put.
The trade is profitable when the stock price goes up. The trade only loses the premium of the Put option and the small price differences between the stock purchase and the Put strike.
Why Trade a Married Put?
A Married Put is a bullish strategy:
- Unlimited profit when the stock price goes up.
- The Protective Put lets us sell 100 stocks at the strike price to limit our maximum losses.
- The stock component of the Married Put can earn dividends for passive income.
Downsides of a Married Put
The Married Put strategy comes with a few disadvantages:
- It costs a premium to buy a Put, where the cost is higher when the strike price is closer to the market price.
- The price of an option also depends on the time to expiration. The longer we want to protect the stocks with a Put contract, the more expensive the premium.
- The Married Put trade is more complex than a simple stock purchase. We need to purchase a new Put option when the existing contract expires or when the market price changes.
What Is the Difference Between a Married Put and a Long Call?
The profit analysis of a Married Put looks similar to a long Call, where the loss is limited when the stock price drops, and there is unlimited profit when the price rises.
But the two strategies have a few differences:
- Unlike a long Call, we hold stocks for a Married Put trade, which can earn dividends.
- The long Call has higher leverage, leading to higher returns than the Married Put.
|Strategies||Cost of trade||Maximum loss||Profits at $150||Return on capital|
How to Find Stocks to Trade Married Puts
Married Puts are great for buying and holding dividend-earning stocks. So we can use the Dividend Screener to find high-yield blue-chip stocks to invest in. The filter settings are:
- Upside >10% for undervalued stocks.
- Dividend Yield >10% to find high-yield opportunities.
Best Married Put Opportunities Right Now
Here we have a list of value stocks with high dividend yields.
|Stocks||Description||Last||Fair value||Upside||Dividend yield|
|BDN||Brandywine Realty Trust||$3.97||$9.05||127.96%||17.72%|
|MPW||Medical Properties Trust Inc||$8.82||$11.54||30.84%||14.32%|
|BIG||Big Lots Inc||$8.99||$27.84||209.68%||11.18%|
To trade a Married Put for BDN REIT:
- Buy 100 shares for $394.
- Buy a Put at $2.50 that expires next month for a $15 premium.
We can expect a 17% dividend yield while we own the stocks. The maximum loss we can expect if the market goes down is selling 100 shares at $2.50 each.
Now you know how to trade Married Puts to hedge your long-term stock investments, you can use the stock pickers to find the best long-term dividend stocks.
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