This strategy is implemented when a trader is bullish on the underlying stock/index in the short term say 2 months or so. A trader will write one Near Month OTM Call Option and buy one next Month OTM Call Option, thereby reducing the cost of purchase, with the same strike price of the same underlying asset. This strategy is used when a trader wants to make prof
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 ..
Stock Price when long call value is equal to net debit.
Call Strike + Net Premium
BULL CALENDER SPREAD Vs LONG COMBO - Risk & Reward
BULL CALENDER SPREAD
LONG COMBO
Maximum Profit Scenario
You have unlimited profit potential to the upside.
Underlying asset goes up and Call option exercised
Maximum Loss Scenario
Max Loss = Premium Paid + Commissions Paid
Underlying asset goes down and Put option exercised
Risk
Limited
Unlimited
Reward
Unlimited
Unlimited
BULL CALENDER SPREAD Vs LONG COMBO - Strategy Pros & Cons
BULL CALENDER SPREAD
LONG COMBO
Similar Strategies
The Collar, Bull Put Spread
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Disadvantage
• Limited profit even if underlying asset rallies. • If the short call options are assigned when the underlying asset rallies then losses can be sustained.
• Losses can keep on increasing as the price of stock goes down. • High risk strategy.
Advantages
• Limited losses to the net debit. • Enable trader to book profit even if underlying asset stays stagnant. • If the market trends reverse, cashing in from stock price movement at limited risk.
• 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.