A trader shorts or writes a Call Option when he feels that underlying stock price is likely to go down. Selling Call Option is a strategy preferred for experienced traders.
However this strategy is very risky in nature. If the stock rallies on the upside, your risk becomes potentially unquantifiable and unlimited. If the strategy
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 ..
It is an aggressive strategy and involves huge risks. It should be used only in case where trader is certain about the bearish market view on the underlying.
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
Sell or Write Call Option
Sell OTM Put Option, Buy OTM Call Option
Breakeven Point
Strike Price of Short Call + Premium Received
Call Strike + Net Premium
SHORT CALL Vs LONG COMBO - Risk & Reward
SHORT CALL
LONG COMBO
Maximum Profit Scenario
Max Profit = Premium Received
Underlying asset goes up and Call option exercised
Maximum Loss Scenario
Loss Occurs When Price of Underlying > Strike Price of Short Call + Premium Received
Underlying asset goes down and Put option exercised
Risk
Unlimited
Unlimited
Reward
Limited
Unlimited
SHORT CALL Vs LONG COMBO - Strategy Pros & Cons
SHORT CALL
LONG COMBO
Similar Strategies
Covered Put, Covered Calls
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Disadvantage
• Unlimited risk to the upside underlying stocks. • Potential loss more than the premium collected.
• Losses can keep on increasing as the price of stock goes down. • High risk strategy.
Advantages
• With the help of this strategy, traders can book profit from falling prices in the underlying asset. • Less investment, more profit. • Traders can book profit when underlying stock price fall, move sideways or rise by a small amount.
• 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.
