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Long Put Vs Long Combo Options Trading Strategy Comparison

Compare Long Put and Long Combo options trading strategies. Find similarities and differences between Long Put and Long Combo strategies. Find the best options trading strategy for your trading needs.

Long Put Vs Long Combo

  Long Put Long Combo
Long Put Logo Long Combo Logo
About Strategy A Long Put strategy is a basic strategy with the Bearish market view. Long Put is the opposite of Long Call. Here you are trying to take a position to benefit from the fall in the price of the underlying asset. The risk is limited to premium while rewards are unlimited. Long put strategy is similar to short selling a stock. This strategy has many advantages over short selling. This includes the maximum risk is the premium paid and lower investment. The challenge with this strategy is that options have an expiry, unlike stocks which you can hold as long as you want. Let's assume you are bearish on NIFTY and expects its price to fall. You can deploy a Long Put strategy by buying an ATM PUT Option of NIFTY. If the price of NIFTY share... Read More 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.
Market View Bearish Bullish
Strategy Level Beginners Advance
Options Type Put Call + Put
Number of Positions 1 2
Risk Profile Limited Unlimited
Reward Profile Unlimited Unlimited
Breakeven Point Strike Price of Long Put - Premium Paid Call Strike + Net Premium

When and how to use Long Put and Long Combo?

  Long Put Long Combo
When to use?

A long put option strategy works well when you're expecting the underlying asset to sharply decline or be volatile in near future.

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.

Market View Bearish

When you are expecting a drop in the price of the underlying and rise in the volatility.

Bullish

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

Action
  • Buy Put Option

Let's assume you're Bearish on Nifty currently trading at 10,400. You expect it to fall to 10,000 level. You buy a Put option with a strike price 10,000. If the Nifty goes below 10,000, you will make a profit on exercising the option. In case the Nifty rises contrary to expectation, you will incur a maximum loss of the premium.

  • Sell OTM Put Option
  • Buy OTM Call Option

Breakeven Point Strike Price of Long Put - Premium Paid

The breakeven is achieved when the strike price of the Put Option is equal to the premium paid.

Call Strike + Net Premium

Compare Risks and Rewards (Long Put Vs Long Combo)

  Long Put Long Combo
Risks Limited

The risk for this strategy is limited to the premium paid for the Put Option. Maximum loss will happen when price of underlying is greater than strike price of the Put option.

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.

Rewards Unlimited

This strategy has the potential to earn unlimited profit. The profit will depend on how low the price of the underlying drops.

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.

Maximum Profit Scenario

Underlying goes down and Option exercised

  • Maximum Profit = Unlimited
  • Maximum Profit Achieved When Price of Underlying = 0
  • Profit = Strike Price of Long Put - Premium Paid

Underlying goes up and Call option exercised

Maximum Loss Scenario

Underlying goes up and Option not exercised

  • Max Loss = Premium Paid + Commissions Paid
  • Max Loss Occurs When Price of Underlying >= Strike Price of Long Put

Underlying goes down and Put option exercised

Pros & Cons or Long Put and Long Combo

  Long Put Long Combo
Advantages

Unlimited profit potential with risk only limited to loss of premium.

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

Disadvantage

You may incur 100% loss in premium if the underlying price rises.

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

Simillar Strategies Protective Call, Short Put, Long Straddle







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