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.
This strategy is applied when trader goes long on the underlying asset i.e. he buys the stock in cash market. He has a bullish view and expects the market to rise in the near future, but simultaneously has the fear of downward movement of the markets. In order to cover his position from vulnerabilities he buys one ATM Put Option of the same underlying asset. Here, a trader wi ..
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 work when the investor goes long in any stock. He expects the rise in market in future.
Action
Buying Call option
Buy 250 XYZ Shares, Buy 1 ATM Put Option
Breakeven Point
Strike price + Premium
Purchase Price of Underlying + Premium Paid
LONG CALL Vs MARRIED PUT - Risk & Reward
LONG CALL
MARRIED PUT
Maximum Profit Scenario
Underlying Asset close above from the strike price on expiry.
Profit = Price of Underlying - Purchase Price of Underlying - Premium Paid
Maximum Loss Scenario
Premium Paid
Max Loss = Premium Paid + Commissions Paid
Risk
Limited
Limited
Reward
Unlimited
Unlimited
LONG CALL Vs MARRIED PUT - Strategy Pros & Cons
LONG CALL
MARRIED PUT
Similar Strategies
Protective Put
Long Call
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.
Cost of the put options eats into profit margin.
Advantages
• Less investment, more profit. • Unlimited profit with limited risk. • High leverage than simply owning the stock.
