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
Bull Put Spread option trading strategy is used by a trader who is bullish in nature and expects the underlying asset to move in an upward trend in the near future. This strategy includes buying of an ‘Out of the Money’ Put Option and selling of ‘In the Money’ Put Option of the same underlying asset and the same expiration date. When you write a Put, you will receive prem ..
LONG COMBO Vs BULL PUT SPREAD - When & How to use ?
LONG COMBO
BULL PUT SPREAD
Market View
Bullish
Bullish
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.
Bull Put Spread strategy is used when you're of the view that the price of a particular underlying will rise, move sideways, or marginally fall.
Action
Sell OTM Put Option, Buy OTM Call Option
Buy OTM Put Option, Sell ITM Put Option
Breakeven Point
Call Strike + Net Premium
Strike price of short put - net premium paid
LONG COMBO Vs BULL PUT SPREAD - Risk & Reward
LONG COMBO
BULL PUT SPREAD
Maximum Profit Scenario
Underlying asset goes up and Call option exercised
Max Profit = Net Premium Received
Maximum Loss Scenario
Underlying asset goes down and Put option exercised
Max Loss = (Strike Price Put 1 - Strike Price of Put 2) - Net Premium Received
Risk
Unlimited
Limited
Reward
Unlimited
Limited
LONG COMBO Vs BULL PUT SPREAD - Strategy Pros & Cons
LONG COMBO
BULL PUT SPREAD
Similar Strategies
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Bull Call Spread, Bear Put Spread, Collar
Disadvantage
• Losses can keep on increasing as the price of stock goes down. • High risk strategy.
• Limited profit potential. • In loss situations, time decay may go against you.
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.
• Benefit from the time decay in profit positions but harmful in loss positions. • Profitable when underlying stock price rises, move sideways or marginal drop. • Reduce the downside risk.
