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

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.

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

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

• Sell OTM Put Option
• Buy OTM Call Option

• Sell Call Option
• Sell Put Option

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 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.

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

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.

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.

Underlying goes up and Call option exercised

Underlying goes down and Put option exercised

One Option exercised

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.

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

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