Comments on: A Married Put Beats a Covered Call THREE Ways

By: Kurt Frankenberg

Kurt Frankenberg — Thu, 20 May 2010 19:28:03 +0000

Thanks for asking, Susan. The LONG answer to your question is about 245 pages… I wrote a book about it called, The Blueprint.

Short answer, however: married puts do not behave the way everyone assumes. Especially if there is time left til expiration. When I buy a stock and a put option, what I am doing is guaranteeing a favorable exit even in a bad market… like the one that you got “stopped out” in.

However, that’s not where the trading ends… it’s the beginning. If your stock goes UP, as you would hope in the first place, your put does not drop in value dollar for dollar. It may drop fifty cents for each dollar that your stock goes up, at first.

As your stock continues up, you may be looking at losing twenty five cents in your put’s value for each dollar that your stock goes up.

Additionally, once your stock has behaved a certain way, you may use one or more of TEN “Income Methods”… adjustments to the original position, most done at a credit, that take income, lower risk, or both.

Once you have used the Income Methods to lower your cost basis on both the stock and the put, you may find yourself in BULLETPROOF status. “Bulletproof” is the term I’ve been using since 2002 to describe the status of a married put in which the collective cost basis of your stock and put option is BELOW the strike price of that put option… in other words, a place in which you cannot lose but your stock still has the potential to grow.

This is the exact opposite of covered calls trading, in which you take on a big risk in hopes of making 3-5%. I will start out with a 5% risk or so… then perhaps bulletproof it… then go on to big gains.

It doesn’t happen all the time, but it does happen… where I’ll pick up an 8%, a 15%, a 30% or even 40% gain on my stock while being totally protected. By “totally protected” I mean NOT having a finicky stop order in place, but rather having a put option GUARANTEEING my exit point.

Sound good? It did to me! That’s why it’s the only way I trade. Come take a look at one of our twice-weekly webinars.

Happy Trading,

Kurt

By: Susan

Susan — Fri, 07 May 2010 04:06:18 +0000

Hello, I am fairly new to using derivatives. I did use covered calls in the past, but not recently, because of how I got burned when the stock market lost so much value a couple years ago.
However, I cannot seem to master short-term trading, either, and I recently got burned again with my long termers. They say, use a stop-loss, and I got stopped and lost!!!!!!!!!!! So, I was thinking if I could use covered calls again, somehow, which used to work in a less volatile market; then, I thought to use protective puts, but the puts were so expensive, that the stock would have to increase way much. So, I have been poking around the internet to learn how to use the market in a less risky way to make money. Ao, how can you buy a put, and still make a profit?

By: Kurt Frankenberg

Kurt Frankenberg — Mon, 29 Mar 2010 19:48:19 +0000

No. You are paying double for time value (on BOTH sides of the stock’s movement) and need a much larger move to overcome that expense. You also are over-leveraged.

Mike Chupka, my friend over at PowerOptions, trades radioActively and comes across this question all the time. He’s done an excellent job of answering this question in a white paper.

The position you describe is called a long strangle and I don’t encourage it.

By: Ramsay Belingham

Ramsay Belingham — Sun, 28 Mar 2010 23:26:52 +0000

The married put, I believe, consists of buying a stock and buying a put re. the stock. How about buying a LEAP and then buying a put? Would that be an effective strategy?

By: jose santos

jose santos — Sun, 07 Mar 2010 02:40:03 +0000

I will love to know what are some of that married put winning stragedy