Long Combo Option Trading Strategy is implemented when a trader is bullish in nature and expects the stock price to rise in the near future. Here a trader will sell one ‘Out of the Money’ Put Option and buy one ‘Out of the Money’ Call Option. This trade will require less capital to implement since the amount required to buy the call will be covered by the amount received
A Strangle is similar to Straddle. In Strangle, a trader will purchase one OTM Call Option and one OTM Put Option, of the same expiry date and the same underlying asset. This strategy will reduce the entry cost for trader and it is also cheaper than straddle. A trader will make profits, if the market moves sharply in either direction and gives extra-ordinary returns in the ..
Lower Breakeven Point = Strike Price of Put - Net Premium, Upper Breakeven Point = Strike Price of Call + Net Premium
LONG COMBO Vs LONG STRANGLE - When & How to use ?
LONG COMBO
LONG STRANGLE
Market View
Bullish
Neutral
When to use?
This strategy is used when an investor Bullish on an underlying but don't have the required capital or the risk appetite to invest directly into it.
This strategy is used in special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc.
Action
Sell OTM Put Option, Buy OTM Call Option
Buy OTM Call Option, Buy OTM Put Option
Breakeven Point
Call Strike + Net Premium
Lower Breakeven Point = Strike Price of Put - Net Premium, Upper Breakeven Point = Strike Price of Call + Net Premium
LONG COMBO Vs LONG STRANGLE - Risk & Reward
LONG COMBO
LONG STRANGLE
Maximum Profit Scenario
Underlying asset goes up and Call option exercised
Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid
Maximum Loss Scenario
Underlying asset goes down and Put option exercised
Max Loss = Net Premium Paid
Risk
Unlimited
Limited
Reward
Unlimited
Unlimited
LONG COMBO Vs LONG STRANGLE - Strategy Pros & Cons
LONG COMBO
LONG STRANGLE
Similar Strategies
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Long Straddle, Short Strangle
Disadvantage
• Losses can keep on increasing as the price of stock goes down. • High risk strategy.
• Require significant price movement to book profit. • Traders can lose more money if the underlying asset stayed stagnant.
Advantages
• Capital investment is low and returns are high. • Unlimited reward, returns keep on increasing with the increase on stock price. • Leverage facility provided by this strategy is very beneficial.
• Able to book profit, no matter if the underlying asset goes in either direction. • Limited loss to the debit paid. • If the underlying asset continues to move in one direction then you can book Unlimited profit .
