How To Buy A Married Put on An Existing Stock Position
A married put (also called a protective put) is a stock/option combination created when a Put(s) is bought equivalent to the amount of stock owned (or purchased). The stock owned is protected from significant loss by the option(s) bought. Here are the steps to buy a married put on an existing stock position.
1. Right click on the position line on the chart to open the drop down menu
2. Select Buy to open {1} Married Put
The number of calls listed in the menu will equate to the nearest 100 share value below the amount owned. For example, if 250 shares are owned, the number will be 2 Covered Calls, which would equal 200 shares. The other 50 shares would not be involved in the combined position.
This places a Buy ticket on the chart for the correct number of put contracts.
3. Select Expiration Date
Change the expiration date either to closer or further dates using the arrows
Alternately, select a specific expiration date from the drop down menu
4. View available strike prices with the limit price line
Click and drag the Limit line between the available strike prices for the selected expiration date. These are represented by the hash marks at the left of the P&L Zones. Simply stop at the desired strike for the contract.
5. Select the order type desired for the contract
Either leave the order set on Limit, or select a different order type from the drop down menu.
6. Set a Limit Price (optional)
The Limit slider shows the spread between the natural (in this case, the bid) and the far (in this case, the ask). To set a price within the spread at which to place your order, click at any point on the slider. The limit value is seen in the price field next to the "Lmt" order type.
7. Use a Step to Limit order (optional)
Another way to take advantage of the spread is the Step to Limit order. Choose the Step to Limit order from the drop down menu.
Set the beginning of the slider at the limit price desired for the initial order. This will be the limit price at which the order will be entered.
Over the predetermined time period the limit price will be automatically modified down from the initial entry price toward the Natural (or selected) price. The step limit order will attempt to secure a preferable fill price in this process. Modification stops if no preferable fill is received and the limit price reaches the Natural.
8. Set the duration (time-in-force) for the order
9. Submit the order
Click Buy to Open Put
Click Place Order to confirm and submit
10. View The Order
The current stock position and the long put will now appear on the chart. In this case, the put is protecting existing profit from further depreciation until the expiration date. If the stock falls below the strike price of the long put, it can be exercised and assigned to the seller. This would protect gains from the stock price to the strike price minus the premium of the put. If the stock rises and the put expires, it reduces whatever profit is ultimately gained by the cost of the premium.
The trading tools work on either a LIVE brokerage account or a PAPER (simulated) trading account. Live market trading requires an account with TC2000 Brokerage (www.TC2000Brokerage.com).