Married Put strategy with a " Twist " .....

M

md2324

I was reading through a few articles regarding the topic of using Options to trade " Directionally " .

In doing some research, I came across the following post and wanted to get other Traders thoughts and opinions on the aftermentioned strategy .

Here is the Post ......

" Have you heard of a twist on the married put strategy that goes like this:

1) Buy 200 shares of stock
2) Buy 3 – one strike OOTM puts 4 months or more out
3) Buy 1 – one strike OOTM call 4 months or more out
4) Sell 2 far out (Leaps) that pay (or mostly pay) for the calls and puts bought

Catastrophe Report:

Stock Rises – This should be profitable as stock plus call option bought gain value
Stock Stays Flat – This would require adjustments and would probably amount in some amount of loss
Stock Drops – This should be profitable as we have one more put than is needed to cover the stock

This seems like a very good way to profit from any stock that moves in price either up or down. What is your thoughts? "

I'm interested to see what others thing about the strategy and if it seems plausible , or if there are any hangups in the strategy ??

Thanks for any and all input
 
You cannot apply the exact same conditions to every trade, or stock you buy. You are already trading direction by owning the shares. Investors often supplement their equity portfolios with options, typically to hedge against a crash, or to amplify returns.

In the above strategy, you lose if the stock stays flat. Well, that's precisely what stocks often do. That's what are options are for, the opportunity to buy/sell convexity, risk, gamma, insurance, whatever you want to call it.

I would start by learning about the basic covered call strategy. If you own shares then you can sell calls against it to generate some income, but your upside will be capped, and the stock can still go down.

Keep in mind it is not possible to "adjust" for a gain. Adding more contracts will just increase your risk. Your goal is to find the best risk/reward in order to implement your view on something, it doesn't matter which products you use to do it.
 
md2324 said:
...
1) Buy 200 shares of stock
2) Buy 3 – one strike OOTM puts 4 months or more out
3) Buy 1 – one strike OOTM call 4 months or more out
4) Sell 2 far out (Leaps) that pay (or mostly pay) for the calls and puts bought

This seems like a very good way to profit from any stock that moves in price either up or down. What is your thoughts? "

I'm interested to see what others thing about the strategy and if it seems plausible , or if there are any hangups in the strategy ??
More...
At first blush, it looks like you've got a substantial amount of decay that will cause some headaches in the absence of a strong move in one direction or the other. Can you give us a specific example in an underlying and the associated strikes you propose to trade?
 
This strategy is very similar to collaring strategies that do best with very volatile stocks. If the stock gives good up and down movement (i.e. multiple strikes) every month you'd be able to build up a large underlying position with the sold calls paying for the long puts. The strategy slowly bleeds you when the stock stops the big swings and consolidates.
 
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