married put with other stuff?
Hi Mark

Got a question. Let's say you find a stock, buy 100 shares, buy a married put 1 year out, then write the covered call to bring in money to pay for the married put.

This is probably a bad idea, assuming the put and call have the same strike price.   You would own what is called a 'forward conversion.' The good news is that it's a riskless position and you neither make nor lose money.

Buy you paid cash for the stock, even if the put and call costs cancel each other. You must pay interest on that stock for a full year - and gain nothing in return. Don't do it.

Conversions, and reversals (taking the opposite side of the conversion) trade all the time among professionals. The risk is in the interest rate.

But, if the put an call have different strike prices (the call strike price is higher), then you own a collar. That's a different story. It's a bullish play with plenty of protection in case the stock tumbles. This is best played by collecting more for the call than you pay for the put. Hopefully you collect enough cash to pay the interest discussed above. You have upside profit potential, but it's limited.

It's a decent play if the potential reward and the potential loss meet your criteria for a good trade. But, don't ignore that interest cost.


Mark D. Wolfinger
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