Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Married Puts


Yesterday, my portfolio manager for volatility, "Steady" Eddie turned to me and said incredulously, "I can't believe that television is reporting that married puts will no longer be allowed and their commentators didn't even know what they are!" As usual when the teletubbies incorrectly report something, Eddie quickly sent off an email to the network to explain and correct their error. As usual, he received no response.

A married put is a way to obtain long stock to sell quickly by a trader who wants to be short a stock. The long stock is used to sell on minus ticks. Essentially, once that long stock is sold, the trader is left in the same position as short stock. The only reason for executing a married put is to circumvent the short tick rule, which slows down a trader shorting a stock by requiring that they sell the stock on plus ticks only (a plus tick is created when the last trade is higher than the previous one). Plus ticks almost always require selling on the offer side. Here is how it works.

A trader, wanting to quickly get short a stock and wanting to therefore circumvent the short tick rule, calls a broker and arranges to buy stock and buy a deep in the money put. The price he pays for the combination is only a few pennies over intrinsic value. For example, if stock X is trading at 50, he buys 50,000 shares at 50 and buys 500 November 70 puts at $20.02. The broker is willing to sell him this combination because there is virtually no chance that the stock can go above 70 (where there is risk for the broker) by November.

The trader is then free to sell out the long stock on minus ticks. Once the stock is sold that leaves the trader long 500 November 70 puts as the only position. This is essentially the same as short stock.

Yesterday as reported on television, the SEC has written a letter to brokers that essentially warns brokers against this type of activity, especially if it occurs over the counter.

I just wrote this to clear up any confusion Minyans may have had over what a married put is.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos