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Newbie Question: Married Puts aka Covered Puts
- Thread starter Stoxtrader
- Start date
Quote from Stoxtrader:
The above is correct according to 888options.com (see definitions below). However, according to The Bible of Options Strategies a covered put is also known as a married put.
Originally I was looking for limited risk, so going by the definitions at 888options.com this would be the married put. After looking at the responses, it would appear a straddle or strangle might be what I am actually looking for...
Married put strategy
The simultaneous purchase of stock and put options representing an equivalent number of shares. This is a limited risk strategy during the life of the puts because the stock can always be sold for at least the strike price of the purchased puts.
Covered option
An open short option position that is fully offset by a corresponding stock or option position. That is, a covered call could be offset by long stock or a long call, while a covered put could be offset by a long put or a short stock position. This insures that if the owner of the option exercises, the writer of the option will not have a problem fulfilling the delivery requirements.
blasphemy. the bible is wrong.
Quote from riskarb:
No, you're long a synthetic call which is equivalent to buying the natural Sep 45C. You lose the price of the call on a close <$45 at expiration. It's fine to strucure the trade synthetically if you're long the stock, but silly to do so if you're starting flat on the ticker.
You would need to trade 4 puts to allow for PnL symmetry. The trade would produce a long synthetic straddle.
Re: starting flat on the ticker
smartoptionsreport.com says for a straddle "ideally, you want both the put and the call to be right at-the-money or one of the options to be only slightly in-the-money". For a strangle you buy the out-of-the-money strike prices. I take it legging in, above or below the strike price(s), is always preferred?
Re: 4 puts to allow for PnL symmetry
It took me a while to get this but now that I've seen some P&L graphs it makes sense. Synthetic long call definition, including P&L chart: http://www.voptions.com/bullish_strategies_synthetic_long_call.htm
Thanks again for the replies.
Stoxtrader
JJ90 as you may know there is very little material on BWBs and ratio spreading. This subject really doesn't belong here since it has nothing to do with what the newbie thought he was looking for. Don't know why daddy's boy popped up with it. The BWB strategy needs to have its own elitetrader thread. Maybe you and db would participate?Quote from jj90:BWBs are essentially ratio spreads with far tails. Learn the fundamentals of ratio spreading before trying.
I said search Yahoo groups not finance.
http://groups.yahoo.com/
To make it easier, here is a link to the group
http://finance.groups.yahoo.com/group/Option_BWBs_and_Collars/
Quote from mysticman:
JJ90 as you may know there is very little material on BWBs and ratio spreading. This subject really doesn't belong here since it has nothing to do with what the newbie thought he was looking for. Don't know why daddy's boy popped up with it. The BWB strategy needs to have its own elitetrader thread. Maybe you and db would participate?
Yeah, someone (don't recall who) mentioned BWBs a few weeks ago on another thread. I searched a around a bit and didn't find much.
I'll start a new thread and call it something like "BWB questions".
Quote from riskarb:
I can't believe all this discussion over a simple synthetic call. Anyone advocating a simultaneous trade in the stock and put shouldn't be listened to.
Can someone tell me how to accomplish the following without using a synthetic call?
Buy AAPL @ 76.98 and buy the Jan 08 100 put for 25.80 = total 102.78. The most you can lose is 2.78 between now and Jan 08.
Then you start writing covered calls. You can get 2.05 for an Oct 80, or maybe go out to Jan 07 and get 5.80. If the stock stays below 80 your calls expire and you write again. If the stock goes up you maybe roll the short calls up and out or get called and sell the long put. If it goes up a lot you sell the stock and long put and buy back the short.
If the synthetic call is identical to long stock and long put then this would be the same as a calendar spread. But a calendar has a sweet spot right around the original strike price. In this case the stock can drop to zero and you still won't lose.
Quote from Eliot Hosewater:
Can someone tell me how to accomplish the following without using a synthetic call?
Buy AAPL @ 76.98 and buy the Jan 08 100 put for 25.80 = total 102.78. The most you can lose is 2.78 between now and Jan 08.
Then you start writing covered calls. You can get 2.05 for an Oct 80, or maybe go out to Jan 07 and get 5.80. If the stock stays below 80 your calls expire and you write again. If the stock goes up you maybe roll the short calls up and out or get called and sell the long put. If it goes up a lot you sell the stock and long put and buy back the short.
If the synthetic call is identical to long stock and long put then this would be the same as a calendar spread. But a calendar has a sweet spot right around the original strike price. In this case the stock can drop to zero and you still won't lose.
Long stock and long 100 put is synthetic 100 call. Given that the stock is at 76.98 right now, this would be an OTM call. If you short a shorter-term 80 call then you would create a diagonal spread and your sweet spot would be at the short call's strike.
By the way, the most you can lose is 2.78+cost of carry on the stock, which works out to be about 5.32, so that's 8.1