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Long Combo Vs Long Call Butterfly Options Trading Strategy Comparison

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

Long Combo Vs Long Call Butterfly

  Long Combo Long Call Butterfly
Long Combo Logo Long Call Butterfly 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. Long Call Butterfly is a neutral strategy where very low volatility in the price of underlying is expected. The strategy is a combination of bull Spread and bear Spread. It involves Buy 1 ITM Call, Sell 2 ATM Calls and Buy 1 OTM Call. The strike prices of all Options should be at equal distance from the current price. Suppose Nifty is currently trading at 10400. You expect very little volatility in it. You can implement the Long Call Butterfly by buying 1 ITM Call Option at 10300, selling 2 ATM Nifty Call Options at 10400, buying 1 OTM Call Option at 10500. Ensure that strike prices of Options are at equidistance. Your loss will be limited to the net premium paid on 4 positions while profit will be limited to strike price of short calls.... Read More
Market View Bullish Neutral
Strategy Level Advance Advance
Options Type Call + Put Call
Number of Positions 2 4
Risk Profile Unlimited Limited
Reward Profile Unlimited Limited
Breakeven Point Call Strike + Net Premium

When and how to use Long Combo and Long Call Butterfly?

  Long Combo Long Call Butterfly
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.

This strategy should be used when you're expecting no volatility in the price of the underlying.

Market View Bullish

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

Neutral

Neutral on the underlying asset and bearish on the volatility.

Action
  • Sell OTM Put Option
  • Buy OTM Call Option

  • Sell 2 ATM Call
  • Buy 1 ITM Call
  • Buy 1 OTM Call

Breakeven Point Call Strike + Net Premium

Upper Breakeven = Higher Strike Price - Net Premium

Lower Breakeven = Lower Strike Price + Net Premium

Compare Risks and Rewards (Long Combo Vs Long Call Butterfly)

  Long Combo Long Call Butterfly
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

Risk in the Long Call Butterfly options strategy is limited to the net premium paid.

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

Rewards in the Long Call Butterfly options strategy is limited to the adjacent strikes minus net premium debit.

Maximum Profit Scenario

Underlying goes up and Call option exercised

Only ITM Call exercised

Maximum Loss Scenario

Underlying goes down and Put option exercised

All options exercised or all options not exercised.

Pros & Cons or Long Combo and Long Call Butterfly

  Long Combo Long Call Butterfly
Advantages

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

Profit earning strategy with limited risk in a less volatile market.

Disadvantage

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

Premiums and brokerage paid on multiple position may eat your profits.

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