Covered Call Vs Long Combo Options Trading Strategy Comparison

The covered call option strategy works well when you have a mildly Bullish market view and you expect the price of your holdings to moderately rise in future.

Long Combo strategy should be deployed when you're Bullish on an underlying but don't have the required capital or the risk appetite to invest directly into it.

When you are expecting a moderate rise in the price of the underlying or less volatility.

When you are expecting the price of the underlying to move up in near future.

• Buy Underlying
• Sell OTM Call Option

Let's assume you own TCS Shares and your view is that its price will rise in the near future. You will Sell OTM Call Option of TCS at a price, where you target to sell your shares. You will receive premium amount for selling the Call option and the premium is your income.

• Sell OTM Put Option
• Buy OTM Call Option

Maximum loss is unlimited and depends on by how much the price of the underlying falls. Loss happens when price of underlying goes below the purchase price of underlying.

Loss = (Purchase Price of Underlying - Price of Underlying) + Premium Received

Long Combo is a high risk strategy. You will start losing money when the price of the underlying moves below the lower strike price. Your losses can be unlimited depending on how low the price of underlying falls.

You earn premium for selling a call. Maximum profit happens when purchase price of underlying moves above the strike price of Call Option.

Max Profit= [Call Strike Price - Stock Price Paid] + Premium Received

Long Combo is a high return strategy. You will earn profits if the underlying moves above the higher price of the underlying. Your profit will depend on how high the price of the underlying moves.

Underlying rises to the level of the higher strike or above.

Underlying goes up and Call option exercised

Underlying below the premium received

Underlying goes down and Put option exercised

It helps you generate income from your holdings. Also allows you to benefit from 3 movements of your stocks: rise, sidewise and marginal fall.

Brings down the cost of investing in a Bullish stocks. And delivers high returns if prices move up.

Unlimited risk for limited reward.

Losses can be high if prices don't move as expected.