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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 | Short Straddle (Sell Straddle or Naked Straddle) | |
|---|---|---|
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| 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 |
| 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 |
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| 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 |
| 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 |
| 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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