Married Put Option Strategy

A married put option strategy is created when you buy shares of a stock and simultaneously buy an equal number of put options with a strike price close to the current stock price. This setup acts like an insurance policy for your shares. If the stock price drops, the put option increases in value, offsetting the losses on your shares. Investors use this strategy when they want to benefit from potential price increases while keeping a safety net underneath their stock investment.

Your upside potential remains completely unlimited, minus the upfront cost paid for the put option. Your maximum loss is capped at a specific level, which equals the stock purchase price minus the put strike price, plus the premium paid for the option. Even if the stock company goes out of business, your losses are limited because you hold the right to sell your shares at the designated strike price.