A Question on Married Puts
I have had many emails asking the same question on married puts posed by a Minyan below:
Minyan: I'm embarrassed by asking this question, but why not just buy the 500 Nov 70 puts without stock? I don't trade options much, but can you NOT buy puts on a downtick?
Me: The answer is because you will not get the liquidity in the options that you can get in the stock. If you go to buy deep in the money puts, the market will price them for risk.
For example, with the stock at 50, the market in the 11/70 puts will be say 19.9 to 20.10. If you tried to buy 500, the market makers will sell you 10 and offer the rest up at 20.35. So, you are right theoretically, but because of a lack of liquidity, especially in options, physically, the married put will provide an overall better execution price than buying deep in the money puts.
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