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Long Combo Vs Covered Strangle Options Trading Strategy Comparison

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

Long Combo Vs Covered Strangle

  Long Combo Covered Strangle
Long Combo Logo Covered Strangle 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 strangle option strategy is a bullish strategy. The strategy is created by owning or buying a stock and selling an OTM Call and OTM Put. It is called covered strangle because the upside risk of the strangle is covered or minimized. The strategy is perfect to use when you are prepared to sell the holding or bought shares at a higher price if the market moves up but would also is ready to buy more shares if the market moves downwards. The profit and in this strategy is unlimited while the risk is only on the downside.
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 two break-even points

When and how to use Long Combo and Covered Strangle?

  Long Combo Covered Strangle
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.

A covered strangle strategy can be used when you are bullish on the market but also want to cover any downside risk. You are prepared to sell the shares on profit but are also willing to buy more shares in case the prices fall.

Market View Bullish

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

Bullish

The Strategy is perfect to apply when you're bullish on the market and expecting less volatility in the market.

Action
  • Sell OTM Put Option
  • Buy OTM Call Option

Buy 100 shares + Sell OTM Call +Sell OTM Put

The covered strangle options strategy can be executed by buying 100 shares of a stock while simultaneously selling an OTM Put and Call of the same the stock and similar expiration date.

Breakeven Point Call Strike + Net Premium
two break-even points

There are 2 break-even points in the covered strangle strategy. One is the Upper break even point which is the sum of strike price of the Call option and premium received while the other is the lower break-even point which is the difference strike price of short Put and premium received.

Compare Risks and Rewards (Long Combo Vs Covered Strangle)

  Long Combo Covered Strangle
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

The risk on this strategy is only on the downside when the price moves below the strike price of the Put option.

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 on this strategy happens when the stock price is above the call price on expiry. The profit is the total of the gain from buying/selling stocks and net premium received on selling options.

Maximum Profit Scenario

Underlying goes up and Call option exercised

You will earn the maximum profit when the price of the stock is above the Call option strike price on expiry. You will be assigned on the Call option, would be able to sell holding shares on profit while retaining the premiums received while selling the options.

Maximum Loss Scenario

Underlying goes down and Put option exercised

The maximum loss would be when the stock price falls drastically and turns worthless. The premiums received while selling the options will compensate for some of the loss.

Pros & Cons or Long Combo and Covered Strangle

  Long Combo Covered Strangle
Advantages

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

  • As the strategy involves buying shares when prices fall, there is long-term gain even if their short-term loss.
  • There is no upside risk due to the long position in stocks.
  • Allows you to earn income in a moderately bullish market.
Disadvantage

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

  • The substantial risk when the price moves downwards.
  • Risk of assignments.
Simillar Strategies Long Strangle, Short Strangle