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Short Call (Naked Call) Vs Long Combo Options Trading Strategy Comparison

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

Short Call (Naked Call) Vs Long Combo

  Short Call (Naked Call) Long Combo
Short Call (Naked Call) Logo Long Combo Logo
About Strategy Short Call (or Naked Call) strategy involves the selling of the Call Options (or writing call option). In this strategy, a trader is Very Bearish in his market view and expects the price of the underlying asset to go down in near future. This strategy is highly risky with potential for unlimited losses and is generally preferred by experienced traders. The strategy involves taking a single position of selling a Call Option of any type i.e. ITM or OTM. These naked calls are also known as Out-Of-The-Money Naked Call and In-The-Money Naked Call based on the type you choose. This strategy has limited rewards (max profit is premium received) and unlimited loss potential. When the trader goes short on call, the trader sells a call option and e... 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 Advance Advance
Options Type Call Call + Put
Number of Positions 1 2
Risk Profile Unlimited Unlimited
Reward Profile Limited Unlimited
Breakeven Point Strike Price of Short Call + Premium Received Call Strike + Net Premium

When and how to use Short Call (Naked Call) and Long Combo?

  Short Call (Naked Call) Long Combo
When to use?

It is an aggressive strategy and involves huge risks. It should be used only in case where trader is certain about the bearish market view on the underlying.

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 the price of the underlying or its volatility to only moderately increase.

Bullish

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

Action
  • Sell Call Option

  • Sell OTM Put Option
  • Buy OTM Call Option

Breakeven Point Strike Price of Short Call + Premium Received

Break even is achieved when the price of the underlying is equal to total of strike price and premium received.

Call Strike + Net Premium

Compare Risks and Rewards (Short Call (Naked Call) Vs Long Combo)

  Short Call (Naked Call) Long Combo
Risks Unlimited

There risk is unlimited and depend on how high the price of the underlying moves.

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 Limited

The profit is limited to the premium received.

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

When underline asset goes down and option not exercised.

  • Max Profit = Premium Received
  • Max Profit Achieved When Price of Underlying <= Strike Price of Short Call

Underlying goes up and Call option exercised

Maximum Loss Scenario

When underline asset goes up and option exercised.

  • Maximum Loss = Unlimited
  • Loss Occurs When Price of Underlying > Strike Price of Short Call + Premium Received
  • Loss = Price of Underlying - Strike Price of Short Call - Premium Received

Underlying goes down and Put option exercised

Pros & Cons or Short Call (Naked Call) and Long Combo

  Short Call (Naked Call) Long Combo
Advantages

This strategy allows you to profit from falling prices in the underlying asset.

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

Disadvantage

There's unlimited risk on the upside as you are selling Option without holding the underlying.

Rewards are limited to premium received only.

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

Simillar Strategies Covered Put, Covered Calls, Bear Call Spread







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