Dude, this is wrong on so many levels. As pointed out by many, it's not a protective put and your potential loss far exceeds $200. If the stock is at $3.73 and the May 7-1/2 put is $3.60, that means that it's trading below parity. IOW, if assigned, you're buying this lot for $3.90. WTH would you do that when you can buy the stock right now for less? And you're doing it with 2 "Vanderbilt" commissions now (buy 100 shares and sell 1 put now for $24.90) and more than likely, 2 more commissions later (be assigned stock and then sell the stock at a later date for another $24.90). Well, you might save a commission if the stock goes under Apart from the entire position being FUBAR, you're buying above market and paying 50 bucks in commissions. And you expect to make money over the long haul trading like this?
I know of few if any investors who think they can time the bottom of a stock perfectly. So often they'll take an initial position and plan to buy more if the stock gets cheaper. Alternatively, they can take an initial position and sell some puts, thus getting a consolation prize if the cheaper share price doesn't come about. I do this myself.
This is not a married put It is not a protective put. You bought stock. You sold the put. This is called going very long. The protective put is BOUGHT along with stock. It is NOT sold. Mark http://blog.mdwoptions.com
Low risk??? What the heck are you talking about. Think about it. Long stock: Makes money with increase in price, loses money with decrease in price Short Put: You collect premium and have to pay max{0,difference of strike and maturity closing price} All you are doing is shifting your profitability up by the premium on the put and increase the slope of the downside from 1:1 to 2:1... its like being short double the underlying below the strike. This is a risky trade, seriously. The fact that you don't know what the payoff is like concerns me. It reminds me of stories of people dabbling in the options market who long underlying and sell a call. What they don't realize is: +C=+S+P and all they really did is sell a put.
Please do yourself a very big favor and read any basic book on options. If your entire transaction is to buy the stock and sell the put, the put is naked. Owning stock is not the cover for a naked put. Joe.
What I said was a mistake- you guys need to chill- I hate when people say crap like "go back to basics" to make themselves feel better. When is a put covered then?
If you buy a put then the put is covered when you also have long stock. If you sell (write) a put then the put is covered when you are also short the stock.
The people here are WRONG They say max risk is $1100, it isnt max risk is $750 cause you buy for 375 and sell for 375 so u pay nothing. But you lose 750 because of the put when stock goes zero. STOCK IS FREE!