Options Query

Hi,

I am new to Derivatives..I have a query on Options.

It is aabout Married Put. I want to know if we have stop loss in our trading system then y should we use married Put, as it acts as same way...just that it might be little more in loss making.

Example..
Suppose I buy stocks of XYZ at 100. and I buy October Put with strike price at 98 for premium of 2.

So If i use stop loss keeping at 98...that will be fine and would be same as buying a put the loss will be same in both case so then why to use a married put.

Please explain what is advantage and disadvantage........new and confused..

Thanks

your stop loss is not valid overnight, so in case of a gap down the put saves your ...er ..shirt.

Options Strategies: Married Put
An investor purchasing a put while at the same time purchasing an equivalent number of shares of the underlying stock is establishing a "married put" position - a hedging strategy with a name from an old IRS ruling.

Market Opinion?
Bullish to Very Bullish

When to Use?
The investor employing the married put strategy wants the benefits of stock ownership (dividends, voting rights, etc.), but has concerns about unknown, near-term, downside market risks. Purchasing puts with the purchase of shares of the underlying stock is a directional and bullish strategy. The primary motivation of this investor is to protect his shares of the underlying security from a decrease in market price. He will generally purchase a number of put contracts equivalent to the number of shares held.

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And Talking in context with Indian Market, please note that the Put option you will get will be for Strike Price 100 and not 98, and that too of farthest September 2011 and more is there, it will be very ill liquid and the Spread of Buy Sell will be BIG. And as Posted by Vector one cannot use an overnight SL.

Noob question.

Why would it be a bullish strategy? If the scrip price increases, the investor benefits in equity while losing in put value. Anyway the put would lose value over time, regardless of the price climbing. In case of the price going down it could be profitable to some extent, but the profits in puts would be offset by losses in equity.

The put is just an insurance against a large fall. The cost of insurance is the premium.

The trader makes money only on the upside for the above example . ( You'll have to look at the dlta of the trade for that) Hence its a hedged bullish strategy.