If the trader is bearish on market and bullish in volatility, he will implement this strategy. However the trader can be neutral in nature i.e. indifferent if the market moves in either of the direction, this strategy will make profits, but uptrend will give a capped income than downtrend which will give unlimited returns.
Long Combo Option Trading Strategy is implemented when a trader is bullish in nature and expects the stock price to rise in the near future. Here a trader will sell one ‘Out of the Money’ Put Option and buy one ‘Out of the Money’ Call Option. This trade will require less capital to implement since the amount required to buy the call will be covered by the amount received ..
PUT BACKSPREAD Vs LONG COMBO - When & How to use ?
PUT BACKSPREAD
LONG COMBO
Market View
Bearish
Bullish
When to use?
This strategy is used when an investor Bullish on an underlying but don't have the required capital or the risk appetite to invest directly into it.
Action
Sell OTM Put Option, Buy OTM Call Option
Breakeven Point
Call Strike + Net Premium
PUT BACKSPREAD Vs LONG COMBO - Risk & Reward
PUT BACKSPREAD
LONG COMBO
Maximum Profit Scenario
Underlying asset goes up and Call option exercised
Maximum Loss Scenario
Underlying asset goes down and Put option exercised
Risk
Limited
Unlimited
Reward
Unlimited
Unlimited
PUT BACKSPREAD Vs LONG COMBO - Strategy Pros & Cons
PUT BACKSPREAD
LONG COMBO
Similar Strategies
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Disadvantage
• Losses can keep on increasing as the price of stock goes down. • High risk strategy.
Advantages
• Capital investment is low and returns are high. • Unlimited reward, returns keep on increasing with the increase on stock price. • Leverage facility provided by this strategy is very beneficial.
