Long Combo Option Strategy-Bullish Options Trading Strategies
When a trader is optimistic on the underlying security and anticipates the security price to increase in the near term, the Long Combo Option Trading Strategy is used. The strategy entails selling out-of-the-money (OTM) put options and purchasing out-of-the-money (OTM) call options. The approach needs less capital because the trader gets a premium for selling the Put Option, which helps to cover the cost of the out-of-the-money Call Option. The trader is investing less but will profit if the asset increases as predicted in the assumed scenario.
Construction
Sell 1 ‘Out of the Money’ Put Option
Buy 1 ‘Out of the Money’ Call Option
Payoff Chart of option strategy
| Option Type | Expiry Date | Strike Price | LTP | Action | No. Of Lots |
| PUT | 29/03/2023 | 39400.0 | 455.0 | Sell | 1 |
| CALL | 29/03/2023 | 40000 | 405.55 | Buy | 1 |
| Max Risk | Max Reward | Lower Break Even | Upper Break Even |
| Unlimited | Unlimited | 39350.55 | 39350.55 |
| Market Expiry | Payoff 1 | Payoff 2 | Net Premium | Option PayOff At Expiry |
| 38600.0 | -800.0 | 0.0 | 49.45 | -750.55 |
| 38700.0 | -700.0 | 0.0 | 49.45 | -650.55 |
| 38800.0 | -600.0 | 0.0 | 49.45 | -550.55 |
| 38900.0 | -500.0 | 0.0 | 49.45 | -450.55 |
| 39000.0 | -400.0 | 0.0 | 49.45 | -350.55 |
| 39100.0 | -300.0 | 0.0 | 49.45 | -250.55 |
| 39200.0 | -200.0 | 0.0 | 49.45 | -150.55 |
| 39300.0 | -100.0 | 0.0 | 49.45 | -50.55 |
| 39400.0 | 0.0 | 0.0 | 49.45 | 49.45 |
| 39500.0 | 0.0 | 0.0 | 49.45 | 49.45 |
| 39600.0 | 0.0 | 0.0 | 49.45 | 49.45 |
| 39700.0 | 0.0 | 0.0 | 49.45 | 49.45 |
| 39800.0 | 0.0 | 0.0 | 49.45 | 49.45 |
| 39900.0 | 0.0 | 0.0 | 49.45 | 49.45 |
| 40000.0 | 0.0 | 100.0 | 49.45 | 149.45 |
| 40100.0 | 0.0 | 200.0 | 49.45 | 249.45 |
| 40200.0 | 0.0 | 300.0 | 49.45 | 349.45 |
Long Combo Option Trading Example
If the Bank Nifty is trading at 39450 levels and a trader wishes to execute a long combo strategy, he will sell one out-of-the-money 39400 Put option for a premium of Rs. 455 & purchase an out-of-the-money 40000 Call option for a premium of Rs. 405. The net investment required to execute this strategy would be approximately Rs. 2000. [(455-405) *40].
Scenario 1:
If the Bank Nifty falls below the short put option at expiration (instead of increasing as anticipated in the base case) and ends at 39100, the investor will lose Rs. 10000. [{(39100 - 39400) + (455 - 405)} *40].
Scenario 2:
If the Bank Nifty ends at 41300 at expiry, as predicted by the dealer, the trader will earn Rs. 14000. [{(40300-40000) + (455-405)}*40]
It’s hard to imagine payoff chart of complex option trading strategies in live market that include both futures and options, so in order to help clients Moneysukh have introduced Traderadar. Traderadar comes with many futures like profit/loss, IV, Greeks, P/C ratio etc.
Also read: Collar Option Trading Strategy
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