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Long Combo Vs Collar Options Trading Strategy Comparison

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

Long Combo Vs Collar

  Long Combo Collar
Long Combo Logo Collar Logo
About Strategy 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. A Collar is similar to Covered Call but involves another position of buying a Put Option to cover the fall in the price of the underlying. It involves buying an ATM Put Option & selling an OTM Call Option of the underlying asset. It is a low risk strategy since the Put Option minimizes the downside risk. However, the rewards are also limited and is perfect for conservatively Bullish market view. Suppose you are holding shares of SBI currently trading at Rs 250. You can deploy a collar strategy by selling a Call Option of strike price Rs 300 while at the same time purchasing a Rs 200 strike price Put option. If the price rises to Rs 300, your benefit from increase in value of your holdings and you will lose net premiums. If the price falls... Read More
Market View Bullish Bullish
Strategy Level Advance Advance
Options Type Call + Put Call + Put + Underlying
Number of Positions 2 3
Risk Profile Unlimited Limited
Reward Profile Unlimited Limited
Breakeven Point Call Strike + Net Premium Price of Features - Call Premium + Put Premium

When and how to use Long Combo and Collar?

  Long Combo Collar
When to use?

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.

The Collar strategy is perfect if you're Bullish for the underlying you're holding but are concerned with risk and want to protect your losses.

Market View Bullish

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

Bullish

When you are of the view that the price of the underlying will move up but also want to protect the downside.

Action
  • Sell OTM Put Option
  • Buy OTM Call Option

  • Buy Underlying
  • Buy 1 ATM Put Option
  • Sell 1 OTM Call Option

Breakeven Point Call Strike + Net Premium
Price of Features - Call Premium + Put Premium

Compare Risks and Rewards (Long Combo Vs Collar)

  Long Combo Collar
Risks 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.

Limited

You will incur maximum losses when price of the underlying is less than the strike price of the Put Option.

Max Loss = Purchase Price of Underlying - Strike Price of Long Put - Net Premium Received

Rewards 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.

Limited

You will incur maximum profit when price of underlying is greater than the strike price of call option.

Max Profit = Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received

Maximum Profit Scenario

Underlying goes up and Call option exercised

Underlying goes up and Call option exercised

Maximum Loss Scenario

Underlying goes down and Put option exercised

Underlying goes down and Put option exercised

Pros & Cons or Long Combo and Collar

  Long Combo Collar
Advantages

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

It protects the losses on underlying asset.

Disadvantage

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

The profit is limited

Simillar Strategies Covered Put Bull, Call Spread, Bull Put Spread