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Long Combo Vs Short Strangle (Sell Strangle) Options Trading Strategy Comparison

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

Long Combo Vs Short Strangle (Sell Strangle)

  Long Combo Short Strangle (Sell Strangle)
Long Combo Logo Short Strangle (Sell 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 Short Strangle (or Sell Strangle) is a neutral strategy wherein a Slightly OTM Call and a Slightly OTM Put Options are sold simultaneously of same underlying asset and expiry date. This strategy can be used when the trader expects that the underlying stock will experience a very little volatility in the near term. It is a limited profit and unlimited risk strategy. The maximum profit earn is the net premium received. The maximum loss is achieved when the underlying moves either significantly upwards or downwards at expiration. A net credit is taken to enter into this strategy. For this reason, the Short Strangles are Credit Spreads. The usual Short Strangle Strategy looks like as below for NIFTY current index value at 10400 (NIFTY S... 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 two break-even points

When and how to use Long Combo and Short Strangle (Sell Strangle)?

  Long Combo Short Strangle (Sell 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.

The Short Strangle is perfect in a neutral market scenario when the underlying is expected to be less volatile.

Market View Bullish

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

Neutral

When you are expecting little volatility and movement in the price of the underlying.

Action
  • Sell OTM Put Option
  • Buy OTM Call Option

  • Sell OTM Call
  • Sell OTM Put

Sell 1 out-of-the-money put and sell 1 out-of-the-money call which belongs to same underlying asset and has the same expiry date.

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

A strangle has two break-even points.

Lower Break-even = Strike Price of Put - Net Premium

Upper Break-even = Strike Price of Call+ Net Premium"

Compare Risks and Rewards (Long Combo Vs Short Strangle (Sell Strangle))

  Long Combo Short Strangle (Sell 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.

Unlimited

The maximum loss is unlimited in this strategy. You will incur losses when the price of the underlying moves significantly either upwards or downwards at expiration.

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

For maximum profit, the price of the underlying on expiration date must trade between the strike prices of the options. The maximum profit is limited to the net premium received while selling the Options.

Maximum Profit = Net Premium Received

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 Strangle (Sell Strangle)

  Long Combo Short Strangle (Sell Strangle)
Advantages

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

The strategy offers higher chance of profitability in comparison to Short Straddle due to selling of OTM Options.

Disadvantage

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

Limited reward with high risk exposure.

Simillar Strategies Short Straddle, Long Strangle







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