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Long Combo Vs Covered Put (Married Put) Options Trading Strategy Comparison

Compare Long Combo and Covered Put (Married Put) options trading strategies. Find similarities and differences between Long Combo and Covered Put (Married Put) strategies. Find the best options trading strategy for your trading needs.

Long Combo Vs Covered Put (Married Put)

  Long Combo Covered Put (Married Put)
Long Combo Logo Covered Put (Married Put) 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. The Covered Put is a neutral to bearish market view and expects the price of the underlying to remain range bound or go down. In this strategy, while shorting shares (or futures), you also sell a Put Option (ATM or slight OTM) to cover for any unexpected rise in the price of the shares. This strategy is also known as Married Put strategy or writing covered put strategy. The risk is unlimited while the reward is limited in this strategy. How to use a Protective Call trading strategy? The usual Covered Put looks like as below for State Bank of India (SBI) Shares which are currently traded at Rs 275 (SBI Spot Price): Covered Put Orders - SBI Stock OrdersSBI Strike Price Sell Underlying SharesSell 100 SBI Shares ... Read More
Market View Bullish Bearish
Strategy Level Advance Advance
Options Type Call + Put Put + Underlying
Number of Positions 2 2
Risk Profile Unlimited Unlimited
Reward Profile Unlimited Limited
Breakeven Point Call Strike + Net Premium Futures Price + Premium Received

When and how to use Long Combo and Covered Put (Married Put)?

  Long Combo Covered Put (Married Put)
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 Covered Put works well when the market is moderately Bearish

Market View Bullish

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

Bearish

When you are expecting a moderate drop in the price and volatility of the underlying.

Action
  • Sell OTM Put Option
  • Buy OTM Call Option

Sell Underlying Sell OTM Put Option

Suppose SBI is trading at 300. You believe that the price will remain range bound or mildly drop. The covered put allows you to benefit from this market view. In this strategy, you sell the underlying and also sell a Put Option of the underlying and receive the premium. You will benefit from drop in prices of SBI, the Put Option will minimize your risks. If there is no change in price then you keep the premium received as profit.

Breakeven Point Call Strike + Net Premium
Futures Price + Premium Received

The break-even point is achieved when the price of the underlying is equal to the total of the sale price of underlying and premium received.

Compare Risks and Rewards (Long Combo Vs Covered Put (Married Put))

  Long Combo Covered Put (Married Put)
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.

Unlimited

The Maximum Loss is Unlimited as the price of the underlying can theoretically go up to any extent.

Loss = Price of Underlying - Sale Price of Underlying - 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

The maximum profit is limited to the premiums received. The profit happens when the price of the underlying moves above strike price of Short Put.

Maximum Profit Scenario

Underlying goes up and Call option exercised

Underlying goes down and Options exercised

Maximum Loss Scenario

Underlying goes down and Put option exercised

Underlying goes up and Options exercised

Pros & Cons or Long Combo and Covered Put (Married Put)

  Long Combo Covered Put (Married Put)
Advantages

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

Its an income generation strategy in a neutral or Bearish market. Also allows you to benefit from fall in prices, range bound movements or mild increase.

Disadvantage

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

The risks can be huge if the prices increases steeply.

Simillar Strategies Bear Put Spread, Bear Call Spread







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