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
Bear Call Spread option trading strategy is used by a trader who is bearish in nature and expects the underlying asset to dip in the near future. This strategy includes buying of an ‘Out of the Money’ Call Option and selling one ‘In the Money’ Call Option of the same underlying asset and the same expiration date. When you write a call, you receive premium thereby r ..
LONG COMBO Vs BEAR CALL SPREAD - When & How to use ?
LONG COMBO
BEAR CALL SPREAD
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 used when you are bearish in market view. The strategy minimizes your risk in the event of prime movements going against your expectations.
Action
Sell OTM Put Option, Buy OTM Call Option
Buy OTM Call Option, Sell ITM Call Option
Breakeven Point
Call Strike + Net Premium
Strike Price of Short Call + Net Premium Received
LONG COMBO Vs BEAR CALL SPREAD - Risk & Reward
LONG COMBO
BEAR CALL SPREAD
Maximum Profit Scenario
Underlying asset goes up and Call option exercised
Max Profit = Net Premium Received - Commissions Paid
Maximum Loss Scenario
Underlying asset goes down and Put option exercised
Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received
Risk
Unlimited
Limited
Reward
Unlimited
Limited
LONG COMBO Vs BEAR CALL SPREAD - Strategy Pros & Cons
LONG COMBO
BEAR CALL SPREAD
Similar Strategies
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Bear Put Spread, Bull Call Spread
Disadvantage
• Losses can keep on increasing as the price of stock goes down. • High risk strategy.
• Limited amount of profit. • Margin requirement, more commission charges.
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.
• This strategy takes advantage of time decay. • Investors can get profit in a flat market scenario. • Investors can earn options premium income with a lower degree of risk.
