Married Put Strategy: A Reunion That Protects Your Portfolio!

A Chance Reunion with Financial Insights

Aaditya, a seasoned financial advisor known for his calm demeanor and sharp insights, had always been the dependable friend in their school days. On a quiet Saturday morning, he bumped into Devika, his old schoolmate and a successful businesswoman, at a local supermarket.

“Aaditya!” Devika exclaimed, her face lighting up with recognition. “It’s been years! How have you been?”

Aaditya smiled, setting down a basket filled with groceries. “Devika! What a surprise! I’ve been good, keeping busy with work. What about you?”

“Oh, the usual—work, managing investments, and keeping up with market chaos,” she replied with a wry smile. “Speaking of which, I’ve been meaning to consult someone about the recent market volatility. It’s been making me a little nervous.”

Aaditya chuckled. “Still the meticulous planner, I see. Why don’t we grab a coffee at the café over there? I can give you a quick overview of some strategies.”

Managing Market Volatility: Aaditya’s Advice

Soon, they were seated with steaming cups of coffee. Aaditya listened intently as Devika outlined her concerns.

“I own 1000 shares of XYZ,” she began. “It’s trading at ₹2,500 per share, and I believe in its long-term growth. But with the regulatory changes in the telecom sector, I’m worried about potential short-term dips.”
Aaditya nodded. “I understand your concern. Given your situation, I’d suggest a strategy called the ‘married put.’ It’s a way to hedge your downside risk while maintaining your position in XYZ.”

The Married Put Strategy Explained

Devika tilted her head. “I’ve heard the term, but I’m not entirely sure how it works.”

“Let me explain,” Aaditya said. “The idea is to buy put options on XYZ shares. Let’s say you purchase put options with a strike price of ₹2,400 at a premium of ₹20 per share. Since each option contract covers 100 shares, you’d need 10 contracts, costing you ₹20,000 in total (10 contracts * 100 shares/contract * ₹20/share).”

Devika nodded, sipping her coffee. “Okay. So, what happens if the stock price falls?”

“If XYZ’s price drops below ₹2,400,” Aaditya explained, “you can exercise your put options and sell your shares at ₹2,400, limiting your losses. For example, if the stock price falls to ₹2,200, you’d face a loss of ₹300,000 on your shares (1000 shares * ₹300 loss/share). But your put options would gain value, as each would be worth ₹200 (₹2,400 strike price – ₹2,200 stock price). With 10 contracts, your total profit from the puts would be ₹200,000. After deducting the premium of ₹20,000, your net profit from the puts would be ₹180,000, significantly offsetting your stock loss.”

Risk and Reward: Understanding Options Trading

“So, my maximum potential loss is capped?” Devika asked.

“Exactly,” Aaditya affirmed. “Your maximum loss per share is the difference between the purchase price and the strike price, plus the premium paid. In this case, ₹2,500 minus ₹2,400 equals ₹100, plus the ₹20 premium, totaling ₹120 per share. Your maximum loss on 1000 shares would be ₹120,000.”

“And what if XYZ’s price goes up?” Devika inquired.

“If XYZ rises to, say, ₹2,700, you’d make ₹200 per share on your shares, totaling ₹200,000. You’d lose the ₹20,000 premium paid for the puts, reducing your net profit to ₹180,000. So, you still participate in the upside, though the premium slightly reduces your gains.”

Devika smiled. “It’s a trade-off, then. I’m paying a premium for downside protection.”

“Exactly,” Aaditya said, leaning back. “It’s not about maximizing profits but managing risk. It’s ideal when you’re optimistic about a stock’s long-term potential but concerned about short-term volatility or specific events.”

“And this wouldn’t suit very long-term, buy-and-hold investors?” she clarified.

“Correct. Long-term investors usually ride out short-term fluctuations. The married put is more appropriate for investors who want a safety net for a defined period.”

Navia App: Simplifying Options Trading

As their conversation wrapped up, Aaditya reached into his pocket and pulled out his phone. “By the way, Devika, there’s something I think you’ll find incredibly useful. Have you heard of the Navia Mobile App?”

Devika shook her head. “No, what’s that?”

“It’s an app I recommend to many of my clients, especially for options trading. It has a built-in option calculator that simplifies the entire process,” Aaditya explained. “For example, with your XYZ strategy, you can use the app to calculate the theoretical price of the put options, analyze Greeks like Delta and Theta, and even simulate different market scenarios.”

Devika’s Confidence Boosted for Market Volatility

“Simulate scenarios? That sounds like something I could use to plan my trades better,” Devika said, intrigued.

“Exactly,” Aaditya continued. “The app gives you real-time market data, so your calculations are always accurate. You can also track your portfolio and make adjustments on the go. It’s especially helpful for understanding how changes in market conditions might affect your positions.”

“That sounds amazing,” Devika said, leaning forward. “I’ve always wanted something that combines analysis and convenience.”

Aaditya smiled. “It’s all about making things easier and more efficient. Why don’t I show you how to set it up right now? You’ll see how straightforward it is.”

They spent the next few minutes exploring the app together. Aaditya walked her through accessing the option calculator, analyzing the Greeks, and simulating potential price movements for XYZ shares. Devika was impressed by how user-friendly the interface was and how much insight it offered at her fingertips.

“This app really changes the game,” Devika said, already planning how to incorporate it into her trading routine. “Thanks for sharing this, Aaditya. I feel much more prepared to handle market volatility now.”

“Happy to help,” Aaditya replied. “Remember, tools like this don’t just make trading easier—they empower you to make informed decisions. Let me know if you need any further guidance.”

As they left the café, Devika felt not just reassured but energized—what began as a chance reunion with an old school friend had turned into a lesson in smart risk management and a fresh perspective on navigating market uncertainty.

DISCLAIMER: Investments in the securities market are subject to market risks, read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory. Brokerage will not exceed the SEBI prescribed limit.