Traders.com

WEDDED BUT AT ODDS

I’m baffled by the pricing my broker gives when looking at the married put combo. Shouldn’t it be priced like a long call since the risk is the same?

Your broker is pricing the long stock/long put combination based on its actual dollar cost in a cash account rather than the capital at risk. Margin accounts have the luxury of appreciating risk reduction as the reduced outlay for shares makes the strategy less prohibitive but more expensive than buying an equal number of limited risk, long calls.

It would be nice to see the day when cash accounts might enjoy the benefits of larger portfolio, risk-based accounts that make the distinction with regards to this position type. In the end, a married put has the same risk properties of the long call, and having brokers uniformly applying that factor to all types of investor accounts makes sense for all involved.

Originally published in the December 2011 issue of
Technical Analysis of Stocks & Commodities magazine. 
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