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Long Combo Vs Long Strangle (Buy Strangle) Options Trading Strategy Comparison

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

Long Combo Vs Long Strangle (Buy Strangle)

  Long Combo Long Strangle (Buy Strangle)
Long Combo Logo Long Strangle (Buy 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 Long Strangle (or Buy Strangle or Option Strangle) is a neutral strategy wherein Slightly OTM Put Options and Slightly OTM Call are bought simultaneously with same underlying asset and expiry date. This strategy can be used when the trader expects that the underlying stock will experience significant volatility in the near term. It is a limited risk and unlimited reward strategy. The maximum loss is the net premium paid while maximum profit is achieved when the underlying moves either significantly upwards or downwards at expiration. The usual Long Strangle Strategy looks like as below for NIFTY current index value at 10400 (NIFTY Spot Price): Options Strangle Orders OrdersNIFTY Strike Price Buy 1 Slightly OTM PutN... Read More
Market View Bullish Neutral
Strategy Level Advance Beginners
Options Type Call + Put Call + Put
Number of Positions 2 2
Risk Profile Unlimited Limited
Reward Profile Unlimited Unlimited
Breakeven Point Call Strike + Net Premium two break-even points

When and how to use Long Combo and Long Strangle (Buy Strangle)?

  Long Combo Long Strangle (Buy 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 Long Strangle is meant for special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc.

Market View Bullish

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

Neutral

When you are unsure of the direction of the underlying but expecting high volatility in it.

Action
  • Sell OTM Put Option
  • Buy OTM Call Option

  • Buy OTM Call Option
  • Buy OTM Put Option

Suppose Nifty is currently at 10400 and you expect the price to move sharply but are unsure about the direction. In such a scenario, you can execute long strangle strategy by buying Nifty at 10600 and at 10800. The net premium paid will be your maximum loss while the profit will depend on how high or low the index moves.

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

A Options Strangle strategy has two break-even points.

Lower Breakeven Point = Strike Price of Put - Net Premium

Upper Breakeven Point = Strike Price of Call + Net Premium

Compare Risks and Rewards (Long Combo Vs Long Strangle (Buy Strangle))

  Long Combo Long Strangle (Buy 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

Max Loss = Net Premium Paid

The maximum loss is limited to the net premium paid in the long strangle strategy. It occurs when the price of the underlying is trading between the strike price of Options.

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.

Unlimited

Maximum profit is achieved when the underlying moves significantly up and down at expiration.

Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid

Or

Profit = Strike Price of Long Put - Price of Underlying - Net Premium Paid

Maximum Profit Scenario

Underlying goes up and Call option exercised

One Option exercised

Maximum Loss Scenario

Underlying goes down and Put option exercised

Both Option not exercised

Pros & Cons or Long Combo and Long Strangle (Buy Strangle)

  Long Combo Long Strangle (Buy Strangle)
Advantages

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

Disadvantage

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

The strategy requires significant price movements in the underlying to gain profits.

Simillar Strategies Long Straddle, Short Strangle







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