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I’ve read about getting into married put and collar positions using short puts. I also realize you can cut down risk if assigned by selling a bull put spread instead. What about using a long put calendar to enter into a married put?

Using a long put calendar or time spread can certainly allow a trader to establish a married put if the front short contract is assigned; however, there can at times be advantages to approaching a married put with this strategy.

As with the bull put spread, not only are you in a limited risk position, but upon assignment the married put is in place as the long stock is already hedged with the back-month put.

Conversely, the holder of a vertical that receives assignment on the put may need or want to go back into the option market to redesign his or her married put, as they don’t have a longer-dated contract to guard the new long stock holdings. This trader only maintains protection into expiration which, if exercised, will result in a closing of shares for a loss equivalent to the strike distance of the vertical minus the initial credit.

Unlike with a vertical, a time spread can enjoy larger than expected returns if implied volatility and time decay work favorably during the holding period — for instance, if shares sit into expiration at the purchased calendar strike and implieds rise during this period. Ultimately, intermonth relationships aren’t fixed as they are for a vertical which, once transacted, has a defined profit and loss.

On the other hand, if the time spread is on the wrong side of implied volatility, potential profits could be a good deal smaller than anticipated. This is due to the spread being long back-month vega, which isn’t guaranteed to move in sync with the front short contract. That said, our maximum loss is secure and not prone to increasing in size or being a good deal larger than expected, as could be the case with a short put or what some refer to as a targeted purchase.

Another caveat regarding the long put calendar as a starter position for a married put or collar is if the stock goes up. Unlike with the more widely used short put or bull put spread, which would profit if the underlying is anywhere above the higher shorted strike, a bullish move away from the time spread’s positioned strike is going to result in a spread that’s worth less money. As this spread feature is less aligned with the married put or collar, both of which are bullish strategies, this poses an additional challenge for strategists interested in using the long put calendar in this capacity.

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