Skip to content

Long Combo Option Strategy-Bullish Strategy

Long-Combo-Option-Strategy

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

long combo

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].

    Open FREE Acccount with us

    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

    No comment yet, add your voice below!


    Add a Comment

    Your email address will not be published. Required fields are marked *

    F & O

      20

      Per order + Get Instant Pledge Benefits* + Zero delivery Brokerage

      10

      Per order only (No hidden charges)

      Open FREE Demat Account in less than 10 minutes (Commodity & Currency)

      20

      Per order + Get Instant Pledge Benefits* + Zero delivery Brokerage

      10

      Per order only (No hidden charges)

      Open FREE Demat Account in less than 10 minutes

      20

      Per order + Get Instant Pledge Benefits* + Zero delivery Brokerage

      10

      Per order only (No hidden charges)

      Related Posts

      Bullish Trend Reversal Candlestick Patterns
      Earning a profit in the bullish market is easier, as you can buy any stock...
      Identify Trend in Stock Market
      Derivatives or Future & Options (F&O) segment accounts major volume of trades in the stock...
      Options-Trading-Beginners
      Explanation Reverse iron condors are market neutral strategy with no directional bias. For this strategy...