Long Call Vs Long Combo Options Trading Strategy Comparison

Compare Long Call and Long Combo options trading strategies. Find similarities and differences between Long Call and Long Combo strategies. Find the best options trading strategy for your trading needs.

Long Call Vs Long Combo

	Long Call	Long Combo


About Strategy	A Long Call Option trading strategy is one of the basic strategies. In this strategy, a trader is Bullish in his market view and expects the market to rise in near future. The strategy involves taking a single position of buying a Call Option (either ITM, ATM or OTM). This strategy has limited risk (max loss is premium paid) and unlimited profit potential. When the trader goes long on call, the trader buys a Call Option and later sells it to earn profits if the price of the underlying asset goes up. When the trader buys a call, he pays the option premium in exchange for the right (but not the obligation) to buy share or index at a fixed price by a certain expiry date. This premium is the only amount at-the-risk for trader in case the mark... Read More	A long Combo strategy is a Bullish Trading Strategy employed when a trader is expecting the price of a stock, he is holding to move up. It involves selling an OTM Put and buying an OTM Call. The strategy requires less capital as the cost of Call Option is covered by premium received from Put Option. Say SBI shares are currently trading at Rs 500. You are bullish on it but doesn't want to invest or have capital to do it. You can use Long Combo strategy here by selling a Put option of SBI at strike price of Rs 400 and buying a Call Option at a strike price of Rs 600. You will earn premium on sell Put Option and pay premium on buying Call Option. you are investing less but will benefit if SBI shares rises as per your expectations.
Market View	Bullish	Bullish
Strategy Level	Beginners	Advance
Options Type	Call	Call + Put
Number of Positions	1	2
Risk Profile	Limited	Unlimited
Reward Profile	Unlimited	Unlimited
Breakeven Point	Strike Price + Premium	Call Strike + Net Premium

When and how to use Long Call and Long Combo?

	Long Call	Long Combo
When to use?	A long call Option strategy works well when you expect the underlying instrument to move positively in the recent future. If you expect XYZ company to do well in near future then you can buy Call Options of the company. You will earn the profit if the price of the company shares closes above the Strike Price on the expiry date. However, if underlying shares don't do well and move downwards on expiry date you will incur losses (i.e. lose premium paid).	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.
Market View	Bullish When you're expecting a rise in the price of the underlying and increase in volatility.	Bullish When you are expecting the price of the underlying to move up in near future.
Action	Buy Call Option A long call strategy involves buying a call option only. So if you expect Reliance to do well in near future then you can buy Call Options of Reliance. You will earn a profit if the price of Reliance shares closes above the Strike price on the expiry date. However, if Reliance shares don't move up within the expiry date you will incur losses.	Sell OTM Put Option Buy OTM Call Option
Breakeven Point	Strike Price + Premium The break-even point for Long Call strategy is the sum of the strike price and premium paid. Traders earn profits if the price of the underlying asset moves above the break-even point. Traders loose premium if the price of the underlying asset falls below the break-even point.	Call Strike + Net Premium

Compare Risks and Rewards (Long Call Vs Long Combo)

	Long Call	Long Combo
Risks	Limited The risk is limited to the premium paid for the call option irrespective of the price of the underlying on the expiration date. Max Loss = Premium Paid	Unlimited 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.
Rewards	Unlimited There is no limit to maximum profit attainable in the long call option strategy. The trade gets profitable when price of the underlying is greater than strike price plus premium. Profit = Price of Underlying - (Strike Price + Premium Paid)	Unlimited 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.
Maximum Profit Scenario	Underlying closes above the strike price on expiry.	Underlying goes up and Call option exercised
Maximum Loss Scenario	Underlying closes below the strike price on expiry.	Underlying goes down and Put option exercised

Pros & Cons or Long Call and Long Combo

	Long Call	Long Combo
Advantages	Buying a Call Option instead of the underlying allows you to gain more profits by investing less and limiting your losses to minimum.	Brings down the cost of investing in a Bullish stocks. And delivers high returns if prices move up.
Disadvantage	Call options have a limited lifespan. So, in case the price of your underlying stock is not higher than the strike price before the expiry date, the call option will expire worthlessly and you will lose the premium paid.	Losses can be high if prices don't move as expected.
Simillar Strategies	Protective Put, Covered Put/Married Put, Bull Call Spread

1 Comments

1. Justin Gilead

| Link|Aug 16, 2022 8:47:47 PMReply

You partially get it wrong! The max loss will be the equivalent of the call premium paid for a single call position, indeed ; for a synthetic call options, it will be likened to the call options premium that you actually haven't paid as the call position has just been replicated along with the help of a long put and a long underlying though. For instance, if you purchase an ITM put, in addition to the long underlying, then the overall cost will be quite high, but the max risk entailed in the position will be the equivalent of the cheap OTM call options (only time value) that stands on the other side and on the same strike. In short, you may pay more to risk less with a synthetic options ; it definitely does the trick for hedging purposes then.

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