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
This strategy is applied when trader goes long on the underlying asset i.e. he buys the stock in cash market. He has a bullish view and expects the market to rise in the near future, but simultaneously has the fear of downward movement of the markets. In order to cover his position from vulnerabilities he buys one ATM Put Option of the same underlying asset. Here, a trader wi ..
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 work when the investor goes long in any stock. He expects the rise in market in future.
Action
Sell OTM Put Option, Buy OTM Call Option
Buy 250 XYZ Shares, Buy 1 ATM Put Option
Breakeven Point
Call Strike + Net Premium
Purchase Price of Underlying + Premium Paid
LONG COMBO Vs MARRIED PUT - Risk & Reward
LONG COMBO
MARRIED PUT
Maximum Profit Scenario
Underlying asset goes up and Call option exercised
Profit = Price of Underlying - Purchase Price of Underlying - Premium Paid
Maximum Loss Scenario
Underlying asset goes down and Put option exercised
Max Loss = Premium Paid + Commissions Paid
Risk
Unlimited
Limited
Reward
Unlimited
Unlimited
LONG COMBO Vs MARRIED PUT - Strategy Pros & Cons
LONG COMBO
MARRIED PUT
Similar Strategies
-
Long Call
Disadvantage
• Losses can keep on increasing as the price of stock goes down. • High risk strategy.
Cost of the put options eats into profit margin.
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.
