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 simply the reversal of the Synthetic Call Strategy. This strategy is implemented when a trader is bearish on the market and expects to go down. Trader will short underlying stock in the cash market and buy either an ATM Call Option or OTM Call Option. The Call Option is bought to protect / hedge the upside risk on the short position. The ..
LONG COMBO Vs PROTECTIVE CALL - When & How to use ?
LONG COMBO
PROTECTIVE CALL
Market View
Bullish
Bearish
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 implemented when a trader is bearish on the market and expects to go down.
Action
Sell OTM Put Option, Buy OTM Call Option
Buy 1 ATM Call
Breakeven Point
Call Strike + Net Premium
Sale Price of Underlying + Premium Paid
LONG COMBO Vs PROTECTIVE CALL - Risk & Reward
LONG COMBO
PROTECTIVE CALL
Maximum Profit Scenario
Underlying asset goes up and Call option exercised
Sale Price of Underlying - Price of Underlying - Premium Paid
Maximum Loss Scenario
Underlying asset goes down and Put option exercised
Premium Paid + Call Strike Price - Sale Price of Underlying + Commissions Paid
Risk
Unlimited
Limited
Reward
Unlimited
Unlimited
LONG COMBO Vs PROTECTIVE CALL - Strategy Pros & Cons
LONG COMBO
PROTECTIVE CALL
Similar Strategies
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Put Backspread, Long Put
Disadvantage
• Losses can keep on increasing as the price of stock goes down. • High risk strategy.
• Profitable when market moves as expected. • Not good for beginners.
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.
• Limited risk if the market moves in opposite direction as expected. • Allows you to keep open a profitable position to make further profits. • Unlimited profit potential.
