Iron Condor is a neutral trading strategy. A trader tries to make profit from low volatility in the price of the underlying asset. This strategy will be better understood if you recall ‘Bull Put Spread’ & ‘Bear Call Spread’. A trader will buy one Deep OTM Put Option and sell one OTM Put Option,. He will also sell one OTM Call Option and buy one Deep OTM Call Option.
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 ..
Upper Breakeven Point = Strike Price of Short Call + Net Premium Received, Lower Breakeven Point = Strike Price of Short Put - Net Premium Received
Call Strike + Net Premium
IRON CONDORS Vs LONG COMBO - Risk & Reward
IRON CONDORS
LONG COMBO
Maximum Profit Scenario
Net Premium Received - Commissions Paid
Underlying asset goes up and Call option exercised
Maximum Loss Scenario
Strike Price of Long Call - Strike Price of Short Call - Net Premium Received + Commissions Paid
Underlying asset goes down and Put option exercised
Risk
Limited
Unlimited
Reward
Limited
Unlimited
IRON CONDORS Vs LONG COMBO - Strategy Pros & Cons
IRON CONDORS
LONG COMBO
Similar Strategies
Long Put Butterfly, Neutral Calendar Spread
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Disadvantage
• Full of risk. • Unlimited maximum loss.
• Losses can keep on increasing as the price of stock goes down. • High risk strategy.
Advantages
• Chance to gather double premium. • Sure, maximum gains on one-half the trade. • Flexible and double leverage at half price.
• 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.
