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Long Combo Vs Short Straddle (Sell Straddle or Naked Straddle) Options Trading Strategy Comparison

Compare Long Combo and Short Straddle (Sell Straddle or Naked Straddle) options trading strategies. Find similarities and differences between Long Combo and Short Straddle (Sell Straddle or Naked Straddle) strategies. Find the best options trading strategy for your trading needs.

Long Combo Vs Short Straddle (Sell Straddle or Naked Straddle)

  Long Combo Short Straddle (Sell Straddle or Naked Straddle)
Long Combo Logo Short Straddle (Sell Straddle or Naked Straddle) 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 Short Straddle (or Sell Straddle or naked Straddle) is a neutral options strategy. This strategy involves simultaneously selling a call and a put option of the same underlying asset, same strike price and same expire date. A Short Straddle strategy is used in case of little volatility market scenarios wherein you expect none or very little movement in the price of the underlying. Such scenarios arise when there is no major news expected until expire. This is a limited profit and unlimited loss strategy. The maximum profit earned when, on expire date, the underlying asset is trading at the strike price at which the options are sold. The maximum loss is unlimited and occurs when underlying asset price moves sharply in upward or down... Read More
Market View Bullish Neutral
Strategy Level Advance Advance
Options Type Call + Put Call + Put
Number of Positions 2 2
Risk Profile Unlimited Unlimited
Reward Profile Unlimited Limited
Breakeven Point Call Strike + Net Premium 2 Breakeven Points

When and how to use Long Combo and Short Straddle (Sell Straddle or Naked Straddle)?

  Long Combo Short Straddle (Sell Straddle or Naked Straddle)
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 is to be used when you expect a flat market in the coming days with very less movement in the prices of underlying asset.

Market View Bullish

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

Neutral

When trader don't expect much movement in its price in near future.

Action
  • Sell OTM Put Option
  • Buy OTM Call Option

  • Sell Call Option
  • Sell Put Option

Breakeven Point Call Strike + Net Premium
2 Breakeven Points

There are 2 break even points in this strategy. The upper break even is hit when the underlying price is equal to the total of strike price of short call and net premium paid. The lower break even is hit when the underlying price is equal to the difference between strike price of short Put and net premium paid.

Break-even points:

Lower Breakeven = Strike Price of Put - Net Premium

Upper breakeven = Strike Price of Call+ Net Premium

Compare Risks and Rewards (Long Combo Vs Short Straddle (Sell Straddle or Naked Straddle))

  Long Combo Short Straddle (Sell Straddle or Naked Straddle)
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

There is a possibility of unlimited loss in the short straddle strategy. The loss occurs when the price of the underlying significantly moves upwards and downwards.

Loss = Price of Underlying - Strike Price of Short Call - Net Premium Received

Or

Loss= Strike Price of Short Put - Price of Underlying - 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

Maximum profit is limited to the net premium received. The profit is achieved when the price of the underlying is equal to either strike price of short Call or Put.

Maximum Profit Scenario

Underlying goes up and Call option exercised

Both Option not exercised

Maximum Loss Scenario

Underlying goes down and Put option exercised

One Option exercised

Pros & Cons or Long Combo and Short Straddle (Sell Straddle or Naked Straddle)

  Long Combo Short Straddle (Sell Straddle or Naked Straddle)
Advantages

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

It allows you to benefit from double time decay and earn profit in a less volatile scenario.

Disadvantage

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

Unlimited losses if the price of the underlying move significantly in either direction.

Simillar Strategies Short Strangle, Long Straddle







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