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This occurs when an investor buys a put option and buys shares of the underlying stock at the same time. It is called a married put because they work hand in hand. The put is protecting the stock.
The main reason for doing this is for tax purposes. It is used to apply the put option to the holding period of the stock.
Trading and Cost Basis
If an investor buys 100 shares of RST at $60 and on the same day buys 1 RST APR 55 Put and $400, he has a break even of 64 on his stock. The maximum trading gain is unlimited, since the shares can increase to an infinite amount.
The investor also has a stop loss on the married option and stock position. Since the option contract gives the trader the right to sell the stock at 55, the difference betwen 55 and the break even of 64 is the maximum loss - which is $900.
This guaranteed maximum loss amount is only set until the expiration month. The contract expires at the end of April. For the investor to retain this type of protection using Put options, he would look to marry the stock with the contract again.
Intrinsic Value Calculation
Copyright  2006 American Investment Training, Inc.
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