Options have been looked at essentially as an instrument that traders use. The use of options in trading short term views has been very widely discussed. However, if we go back in the history Futures and Options have had their uses for the investors of the assets as well.
Many investors especially tactical investors, who invest for a good 3-6 months get a little worried after a big rise. The worry is about two things. One is if I invest now and if the market reverses the money set aside for 3-6 months for a particular investment may get blocked for more time. This is because every stock has at least some impact of the whole market going up or down.
Second worry is about the existing investments. Investments which are already in the process of getting materialized may get stuck for longer period of time. At the same time there is this fear of missing out in case of a smallest of falls that I wish I could have sold when the markets were higher.
There are many alternative solutions to this like averaging out your fresh investments over a period of time so that in case if market falls then we have room to invest more at a lower price. Same for selling, many investors seek the route of part profit booking by selling some of their investments. This is helpful but it does reduce the profits.
However, in this case Options provide a solution that will also come at a cost of reducing profits but a lot less than what the traditional techniques reduce. The strategy is called Married Put.
What is Married Put?
Textbook definition of Married Put is “A married put is an options trading strategy where an investor, holding a stock, purchases a put option on the same stock to protect against depreciation in the stock's price.”
All of us know that Put options is an option to sell the stock at the strike price on the day of expiry. Now we instead of not Buying full in fresh investments or partially booking profits in existing investments, we can buy Put options.
Which Put Option to Buy?
Try to buy a Put option with the strike price that is closest to the current market price of the stock with the longest available expiry. This way we get an option to sell at current price if price on the day of expiry is significantly lower.
What is the downside (cost)?
The only cost associated with this strategy is the premium that we need to pay on the Put option.
Why Married Put in already risen market?
This is because in a risen market there is a lot to lose. More importantly, in a risen market Put options are available at relatively lower prices.
Married Puts are a good strategy at all times but after a big rise it is a must-have for investors to be more confident and aggressive.
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