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
Strip Strategy is the opposite of Strap Strategy. When a trader is bearish on the market and bullish on volatility then he will implement this strategy by buying two ATM Put Options & one ATM Call Option, of the same strike price, expiry date & underlying asset. If the prices move downwards then this strategy will make more profits compared to short straddle because of the ..
Upper Breakeven Point = Strike Price of Calls/Puts + Net Premium Paid, Lower Breakeven Point = Strike Price of Calls/Puts - (Net Premium Paid/2)
LONG COMBO Vs STRIP - When & How to use ?
LONG COMBO
STRIP
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.
When a trader is bearish on the market and bullish on volatility then he will implement this strategy.
Action
Sell OTM Put Option, Buy OTM Call Option
Buy 1 ATM Call, Buy 2 ATM Puts
Breakeven Point
Call Strike + Net Premium
Upper Breakeven Point = Strike Price of Calls/Puts + Net Premium Paid, Lower Breakeven Point = Strike Price of Calls/Puts - (Net Premium Paid/2)
LONG COMBO Vs STRIP - Risk & Reward
LONG COMBO
STRIP
Maximum Profit Scenario
Underlying asset goes up and Call option exercised
Price of Underlying - Strike Price of Calls - Net Premium Paid OR 2 x (Strike Price of Puts - Price of Underlying) - Net Premium Paid
Maximum Loss Scenario
Underlying asset goes down and Put option exercised
Net Premium Paid + Commissions Paid
Risk
Unlimited
Limited
Reward
Unlimited
Unlimited
LONG COMBO Vs STRIP - Strategy Pros & Cons
LONG COMBO
STRIP
Similar Strategies
-
Strap, Short Put Ladder
Disadvantage
• Losses can keep on increasing as the price of stock goes down. • High risk strategy.
Expensive., The share price must change significantly to generate profit., High Bid/Offer spread can have a negative influence on the position.
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.
Profit is generated when the share price changes in any direction., Limited loss., The profit is potentially unlimited when share prices are moving.
