"Married put" using bonds

[Eliot Hosewater]

There are a few high yield bonds out there, but in this environment a real risk is that the issuer might go tits up.

Has anyone considered or tried a strategy where you buy a bond and use part of the interest to buy puts on the company? You could figure that if a well known company defaults on its bonds then the stock would tank pretty far, so the puts could be well OTM.

 

[h hubbins]

that's interesting. never thought about it. do you have any examples? i'm guessing that you are playing purely for capital gain on the bonds if you are going to use the interest for buying puts.

 

[Eliot Hosewater]

Quote from h hubbins:

that's interesting. never thought about it. do you have any examples? i'm guessing that you are playing purely for capital gain on the bonds if you are going to use the interest for buying puts.

No, I would be going for the interest, and using a small part of it to buy far OTM puts. I haven't had the time to look up any specific examples yet. Maybe by next week.

I guess if you were bearish on a company you could use all of the interest to buy more puts that are closet to ATM. I think some airlines have some higher interest bonds and many of them are in big trouble.