A Married Put Beats a Covered Call THREE Ways

That’s right… I’ll say it. Married puts are better than covered calls, as short- OR long-term trading strategy.

I WOULD say that no one else does… but a lot of folks have jumped on the bandwagon recently and are beginning to teach the benefits of married puts. Welcome to the club 😉

SO! Ready to count ’em off? Here goes:

C.H. shared a trade from November 2009 in which she picked up a cool 7.9% in sixteen days for a covered call trade. I told her that she very likely would have done better with a married put that was assembled according to the principles in The Blueprint.

Using the options trading back-testing feature at http://www.poweropt.com/RAT/, we discovered that indeed… if C.H. had only used a married put trade the way that I teach it, instead of a covered call trade… her return would have been 12.6%, and in a shorter time-frame.

What does THAT do to the silly notion that puts are expensive?

Truth is, most folks know about the protection feature of trading stock and using a put for protection. But what MOST folks don’t know is this…

While protecting you against losses on the downside of a trade, a put option ALSO makes it possible for you to have an unlimited upside.

When you look at the graph of a married put position, it look like a hockey stick. The flat line below the break-even point is firmly on the ice… a representation of the fact that if something goes horribly wrong, your losses are absolutely limited.

On the other hand, that diagonal line going up and to the right represents your UN- impeded profit potential. When you look at the graph of a covered call, on the other hand, the “hockey stick” is upside down.

That doesn’t seem right… does it? By owning stock, you take on all the risks of ownership. On the other hand, if it turns out that you have a winner, say buh-bye to the upside potential. With a covered call trade, you accept a little bit of money in hand NOW… to perhaps be forced to deliver your winning stock to someone else at THEIR price.

Covered calls limit your upside; you might make a little bit of short term income, but then must deliver up your winning stock at a bargain to someone else. Who wins in this transaction?

As Warren Buffet once said… if you’re sitting at a poker table for more than fifteen minutes and don’t know who the patsy is… YOU’RE the patsy!

Don’t worry… while the covered calls strategy will let you have a only tiny stipend for the winning stocks you have picked, and turn those winners over to someone else… you may console yourself by holding onto the losers.

😉

Hey, hope I’m not rubbing it in. Too much. But, hey… if you’re really making those 3-5% per month gains that everyone implied or outright promised, you probably stopped reading a while ago.

There is a THIRD way that married puts outperform covered calls. Not only do they protect better on the downside, not only do they leave the upside open so that a big winner can win bigger…

The third way that married puts outperform covered calls is that the put option itself can be manipulated for profit.

I like to refer to “Spread Trades AFTER the Fact”… when your stock behaves a certain way you can end up with extra money from manipulating the insurance policy that your put is.

In fact, there are TEN different ways to take money out of a married put arrangement without necessarily selling the stock. Interested to find out some of them? Let’s open this board up for discussion…your comments are welcomed below.

Other Income Method and Bulletproofing Resources

Hey, didja dig this post? 😉 Make sure and share the love by commenting, liking, sharing it with a friend. And if you’re hot on these ideas of ‘nested spread trades’, ‘Income Methods’, and ‘Bulletproofing’… here’s is a short list of other free educational resources sponsored by RadioActive Trading:

Double Dippin’… Taking Even More Premium Than Covered Calls
Catching Premium Better Than Covered Calls: The “Money Net”, Part Deux
This Simple Trick Made My Stock BULLETPROOF
Coaching Client Steve S., Makin’ Star-BUCKS…
What on Earth Is a Nested Spread Trade?
Options Trading Wisdom From The Art of War

 

YouTube:
http://www.youtube.com/watch?v=5yDIR4t0rjc&list=UUPvzT0P7mUh6IifL6NT3IEw&index=33
http://www.youtube.com/watch?v=m1Y3MnrS3Bs&list=UUPvzT0P7mUh6IifL6NT3IEw&index=1

For Free Options Trading Educational Webinars Every Tuesday and Thursday, Register HERE

For a free two-week subscription (no CC needed) to the PowerOptions “Search and Destroy” Platform for finding, managing, and BULETPROOFING these kinds of trades, Register HERE

Happy Trading!

Kurt

 

About Kurt Frankenberg

Kurt Frankenberg is an author and speaker about entrepreneurship, martial arts, and trading the stock and options markets. One of several "Biznesses" he founded as a teen, The Freedom School of Martial Arts, has been in continuous operation since 1986. Kurt lives in Colorado Springs with his wife Sabrina, German Shepherd Jovi, and his ninja cat Tabi.