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Long Combo Options Trading Strategy Explained

Published on Wednesday, April 18, 2018 | Modified on Sunday, July 7, 2019

Long Combo

Long Combo Options Strategy

Strategy LevelAdvance
Instruments TradedCall + Put
Number of Positions2
Market ViewBullish
Risk ProfileUnlimited
Reward ProfileUnlimited
Breakeven PointCall Strike + Net Premium

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 ₹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 ₹400 and buying a Call Option at a strike price of ₹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.

When to use Long Combo strategy?

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.

Example

Suppose SBI shares are currently trading at ₹500. You are bullish on it but doesn't want to invest or have enough capital to do it. You can use Long Combo strategy here by selling a Put option of SBI at strike price of ₹400 for a premium of ₹25 and buying a Call Option at a strike price of ₹600 for a premium of ₹35. You will earn premium on sell Put Option and pay premium on buying Call Option.

SBI stock price₹500
Option Lot Size75
Short Put Option Strike Price₹400
Premium Received₹25
Long Call Option Strike Price₹600
Premium Paid₹35
Net Premium Paid₹10
Break Even Point (Call Strike Price + Net Premium)₹610

Long Combo Option Strategy Payoff Schedule
SBI Closing Price(₹)Short Put Option Payoff
BEP = 375
Long Call Option Payoff (₹)
BEP = 635
Net Payoff (₹)

Net Payoff
300-5625-2625-8250
400-1875-2625-4500
5001875-2625-750
6101875-18750
700187548756750
80018751237514250
long combo strategy example nifty

Market View - Bullish

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

Actions

  • Sell OTM Put Option
  • Buy OTM Call Option

Breakeven Point

Call Strike + Net Premium

Risk Profile of Long Combo

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.

Reward Profile of Long Combo

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.

Max Profit Scenario of Long Combo

Underlying goes up and Call option exercised

Max Loss Scenario of Long Combo

Underlying goes down and Put option exercised

Advantage of Long Combo

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

Disadvantage of Long Combo

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

How to exit?

  • When the price of the underlying rises, book profits.
  • Reverse the trade by buying the short option and selling the long option.

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