Comments on: Aren’t Protective Puts / Married Puts EXPENSIVE?

By: admin

admin — Tue, 06 Apr 2010 15:32:43 +0000

Married calls are definitely a possible way to play the bearish markets. Another choice would be to just buy a put option and put the rest of the cash into something interest bearing with minimal risk. Just keep in mind that when you short stock there are other fees involved like margin interest.

By: HARVEY A DUBIN

HARVEY A DUBIN — Sat, 27 Mar 2010 15:37:00 +0000

I was wondering do you ever do ‘married calls” with short positions?

Thanks

Harvey

By: Kurt Frankenberg

Kurt Frankenberg — Tue, 09 Mar 2010 21:51:08 +0000

Hi Joe,

The answers to your questions are in the question itself.

1) You are making the assumption that I would trade IWM that deeply in the money. I wouldn’t.

2) You have never been whipsawed or been long during a black swan event or you would never have offered an example like this.

On a whip down, then back up you would be filled on your put at a bad price, get stopped out of your stock, or both.

Also, whenever you say “Sell covered calls” just substitute the words “sell naked puts” and see how much sense that makes in a whipsaw.

My married put strategy does very well, thank you. It keeps me out of trouble when a stop order can’t, and takes advantage of the moves UP without limiting growth like a covered call does.

Check out the math! Covered call selling might seem sexy but long term it’s a losing proposition.

Happy Trading,

Kurt

By: joe

joe — Sun, 28 Feb 2010 15:07:59 +0000

i think buying a stock and doing a married put is a poor strategy…..let’s look at the radioactive philosophy…..time value and money at risk?

let’s say you bought a etf like iwm….and was at 62 and you according to radioactive was going to buy the jan12-70 (ditm) put……just buy the stock…and sell covered calls……put a contingent order in so that if iwm drops 10% you purchase the same 70 strike put you were thinking about…..if the stock drops 10% and you purchase the put at strike 70….the time value is 25% or more less and therefore your at risk is lower…so why buy the protection immediately and have more at risk?

By: Scott Pfundston

Scott Pfundston — Thu, 25 Feb 2010 03:44:25 +0000

…The problem with using a “stop loss” trigger is, …a lot of time these reactions are the knee-jerk reactions. Meaning, the anouncment come out less-than-favorable, there is a sell-off in the market, your stop is hit for a 5-6% loss [stop running?]… then the buyers re-enter. At this point you are playing catch-up.
*IF you had a 3-month-out Protective Put in play, you still have time to make adjustments [money] to your account.
*IF the market continues to “tank”… your loss% is PRE-calculated.
*IF it is the typical knee-jerk reaction and the market movers are taking out stops …just to turn around and buy back-in at a lower price [in turn move the market right back up], then you have nothing to worry about ..YOU decide when you want to get out. In this case… you would have never been “taken-out”.
*AND… You don’t have to be glued to your trading screen to see if you will be “stopped-out” just to re-enter. [you have weeks,or even months, to make this decision].
I used to use stop-losses for years. No more. With the Protective Put [coupled with a few other simple adjustments ...OR just by themselves alone], there is just no better way [imho].

By: Richard Pauley

Richard Pauley — Wed, 24 Feb 2010 18:19:08 +0000

It seems to me that the primary advantage to your system is to protect against a large drop in the value of a stock. Usually this happens after a disappointing earnings announcement. If you use a traditional stop of 5-6 %, but make sure you do not hold a stock over earnings, the potential large decline is eliminated thus you will be able to gain all of the upside and still have a stop in place. this assumes you reenter your position after earnings or you just avoid buying any stock prior to earnings.