- Options Combinations
- Call & Put Buying Combinations
- Synthetic Underlying
- Long Combo Options Strategy
- You May Also Like
- Continue Reading...
- Buying Straddles into Earnings
- Writing Puts to Purchase Stocks
- What are Binary Options and How to Trade Them?
- Investing in Growth Stocks using LEAPSÂ® options
- Effect of Dividends on Option Pricing
- Bull Call Spread: An Alternative to the Covered Call
- Dividend Capture using Covered Calls
- Leverage using Calls, Not Margin Calls
- Day Trading using Options
- What is the Put Call Ratio and How to Use It
- Understanding Put-Call Parity
- Combination option trades: straddle, strangle, strip/strap (FRM T3-39)
- Understanding the Greeks
- Valuing Common Stock using Discounted Cash Flow Analysis
Home / Option Strategy Finder
A combination is an option trading strategy that involves the purchase and/or sale of both call and put options on the same underlying asset.
Call & Put Buying Combinations
The straddle is an unlimited profit, limited risk option trading strategy that is employed when the options trader believes that the price of the underlying asset will make a strong move in either direction in the near future.
It can be constructed by buying an equal number of at-the-money call and put options with the same expiration date.
Like the straddle, the strangle is also a strategy that has limited risk and unlimited profit potential. The difference between the two strategies is that out-of-the-money options are purchased to construct the strangle, lowering the cost to establish the position but at the same time, a much larger move in the price of the underlying is required for the strategy to be profitable.
The strip is a modified, more bearish version of the common straddle.
Construction is similar to the straddle except that the ratio of puts to calls purchased is 2 to 1.
The strap is a more bullish variant of the straddle. Twice the number of call options are purchased to modify the straddle into a strap.
Combinations can be used to create options positions that have the same payoff pattern as the underlying.
Long Combo Options Strategy
These positions are known as synthetic underlying positions. Using equity options as an example, a synthetic long stock position can be created by buying at-the-money call and selling an equal number of at-the-money put options.
You May Also Like
Buying Straddles into Earnings
Buying straddles is a great way to play earnings.
Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results....[Read on...]
Writing Puts to Purchase Stocks
If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount....[Read on...]
What are Binary Options and How to Trade Them?
Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time.....[Read on...]
Investing in Growth Stocks using LEAPSÂ® options
If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPSÂ® and why I consider them to be a great option for investing in the next MicrosoftÂ®....
Effect of Dividends on Option Pricing
Cash dividends issued by stocks have big impact on their option prices.
This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date....[Read on...]
Bull Call Spread: An Alternative to the Covered Call
As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement.
In place of holding the underlying stock in the covered call strategy, the alternative....[Read on...]
Dividend Capture using Covered Calls
Some stocks pay generous dividends every quarter.
You qualify for the dividend if you are holding on the shares before the ex-dividend date....[Read on...]
Leverage using Calls, Not Margin Calls
To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk.
A most common way to do that is to buy stocks on margin....[Read on...]
Day Trading using Options
Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading....
What is the Put Call Ratio and How to Use It
Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator....
Understanding Put-Call Parity
Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa....
Combination option trades: straddle, strangle, strip/strap (FRM T3-39)
Understanding the Greeks
In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions.
They are known as "the greeks"....
Valuing Common Stock using Discounted Cash Flow Analysis
Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow.... [Read on...]