Hi friends. We hope you are doing fine.
Yes we know that you are waiting for the next strategy. And apologies
for posting in so late. But while we were away, we made sure we work on
other topics which will benefit you. So while we were away we developed
few tutorial videos which explain how to install and operate Moneypalm’s
Trading Terminals and Back-office software.
You can check the videos on TradeTalk under the Tutorials Tab
So after the long wait, we are back to the Options Trading Strategies. Our today’s strategy is :
Long Combo (Sell a Put, Buy a Call)
This is an extremely bullish strategy where we expect the price of the stock to shoot up.
In this we Buy Out of the Money Call
(Higher Strike Price than CMP) and Sell Out of the Money Put (Lower
Strike Price than CMP) together.
This strategy is good when we want to invest less in the market
When can we use this strategy?
We use this strategy when we are extremely bullish in a particular stock or index
Risk involved while using this strategy
This has unlimited risk as we sell the put
Benefits of using the strategy
Unlimited reward as we have bought the call.
When do we achieve the breakeven?
Breakeven = higher strike price + net debit
Example
Let’s say ABC stock is currently trading
at Rs. 250 per equity share. You are bullish on the stock but do not
want to spend Rs. 250 on buying it. So you choose to apply the Long
Combo Strategy where you sell a Put with strike price of Rs. 200 with a
premium of 10 and buy a Call with a strike price of Rs. 300 and a
premium of Rs. 20 .
Analysis of the Strategy
For a small investment of Re. 10 (net debit), the returns can be very high in a Long Combo
But here is a word of caution – This
strategy is profitable only if the stock moves up. Otherwise the
potential losses can also be high.