This is the first strategy which is combination of two techniques. Long Combo Options Strategy is combination of two strategies we have already discussed. So you need to understand those two for clear understanding of this one. Those two strategies are
Above two are combined to form Long Combo but with only one restriction. The restriction is that you need to use only the OTM (Out of Money) strike prices. It is one of those strategies which have unlimited profit and loss potential whereas most of the other ones have limited profit or loss potential. It also has low requirement of premium invested which may appear appealing to traders. But this should only be used if you are bullish on the stock or index because the profit potential increases with big price movement in positive direction.
It is bit risky technique if market does not move in your direction that is bullish. So you need to be double sure in that case and understand that if there is no clear indication of market condition improvement then you should not exercise this option. It can be termed as high profit and high loss strategy which works best in very bullish market.
You can watch either the English Video or Hindi Video to understand the strategy in details.If you are new to Options trading then I would suggest you to watch or read the Getting Started tutorial on Options . That will help you understand the strategies as well. Below video will explain the key concepts like
- Profit loss trade off of the technique
- Benefits to combining the Short Put
- Understand it with an real example
- Margin requirements for the strategy creation
English Video
Hindi Video
Conclusion
With Long Combo we have started with complex strategies which require combination of two techniques to form one technique. So you need to have clear understanding on the fundamental techniques. That helps select the strike prices wisely to create the Long Combo so that trade is profitable. If you do not have clear understanding of the underlying technique then you will have problem devising the profitable combination.
So if you have slight of doubt in underlying techniques then you should watch those videos or tutorials and then watch this one for clear understanding of techniques to use. In case of any questions you can ask those as well and I will try to help you answer them. Note understanding of these techniques will help you identify which technique to apply depending upon the market condition. It is very profitable technique if applied in positive bullish market but does not have good protection if market reverses. So it is risky high profit and high loss technique which should only be applied if you are sure that market will not reverse in near future or till you book profit from your positions.