Protect Your Portfolio With Married Puts

Hey traders,

In today’s market update, I wanted to highlight a key strategy that can provide you with protection, unlimited upside, and great insurance…

Especially as the S&P 500 and other major indices approach new highs. 

If potential downturns in high-performing stocks concern you one effective way to safeguard your portfolio is by using a simple “married put” strategy.

A married put is an options strategy where you buy shares of stock and, at the same time, purchase a put option for the same stock to protect against potential losses. This strategy gives you downside protection while allowing you to still benefit if the stock price rises.

Example of a Married Put:

Let’s say you purchase 100 shares of a stock currently trading at $100 per share. So, your total investment in the stock is $10,000.

  1. Buy the stock:
    • You buy 100 shares of Stock XYZ at $100 per share, which costs you $10,000.
  2. Buy the put option:
    • At the same time, you buy a put option with a strike price of $100 (the current stock price) for $2 per share, which costs you an additional $200 for the option (100 shares x $2).

Outcomes:

  1. Stock price goes up:
    • If Stock XYZ increases to $110 per share, your stock investment is now worth $11,000.
    • The put option will expire worthless (since the stock price is above the strike price of the put option), but your profit is still $1,000 (the stock’s gain minus the $200 cost of the put option).
  2. Stock price goes down:
    • If Stock XYZ drops to $90 per share, your stock is now worth $9,000.
    • However, the put option you purchased will gain value. Since you bought the put at a strike price of $100, it will now be worth $10 per share (the difference between the strike price and the current stock price), which gives you $1,000 in profit from the put option (100 shares x $10).
    • This $1,000 gain from the put option offsets your stock’s $1,000 loss, leaving your net position close to your original investment (minus the cost of the put).

Key Takeaways:

  • If the stock goes up, the put option is just insurance, and you may not need it.
  • If the stock drops, the put option protects you from significant losses, limiting your risk.

This strategy is particularly useful when you’re bullish on a stock long-term but want protection against short-term downside risk.

And if you’d like to know which stocks I’m targeting in October, you can get all the details here.

Happy Trading, 

Jack Carter

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