This is one of the basic strategies as it involves entering into one position i.e. buying the Call Option only. Any investor who buys the Call Option will be bullish in nature and would be expecting the market to give decent returns in the near future.
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 ..
Bullish (Any investor who buys the Call Option will be bullish in nature and would be expecting the market to give decent returns in the near future.)
Bullish
When to use?
This strategy work when an investor expect the underlying instrument move in upward direction.
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.
Action
Buying Call option
Sell OTM Put Option, Buy OTM Call Option
Breakeven Point
Strike price + Premium
Call Strike + Net Premium
LONG CALL Vs LONG COMBO - Risk & Reward
LONG CALL
LONG COMBO
Maximum Profit Scenario
Underlying Asset close above from the strike price on expiry.
Underlying asset goes up and Call option exercised
Maximum Loss Scenario
Premium Paid
Underlying asset goes down and Put option exercised
Risk
Limited
Unlimited
Reward
Unlimited
Unlimited
LONG CALL Vs LONG COMBO - Strategy Pros & Cons
LONG CALL
LONG COMBO
Similar Strategies
Protective Put
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Disadvantage
• In this strategy, there is not protection against the underlying stock falling in value. • 100% loss if the strike price, expiration dates or underlying stocks are badly chosen.
• Losses can keep on increasing as the price of stock goes down. • High risk strategy.
Advantages
• Less investment, more profit. • Unlimited profit with limited risk. • High leverage than simply owning the stock.
• 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.
