Long Combo is a variation of the Long Synthetic Future. The only difference is
we sell out-of-the-money (lower strike) puts and buy out-of-the-moey (higher
net effect is an inexpensive trade, similar to a Long Stock or Long Futures
except there is a gap between the
the investor wishes for a capital gain.
is trading at $35.25 on June 3, 2011.
November 2011 30 strike puts at $1.65.
November 2011 40 strike calls at $2.35.
credit from the put helps to pay for the debit of the long call.
outlay of money for something like a long stock position, with unlimited profit
risk is that you are open to unlimited losses until the stock hits zero. Reward
is unlimited upside potential.
profit once the stock starts to rise.
downside risk. No protection.
net credits: higher strike minus net credit.
net debits: higher strike plus net debit.
Of Time Decay
Although the effect is small because you are buying and selling near the money
options, thereby reducing time decay.
stem a loss, when the stock breaks down through the stop loss, sell the position.
out the position by selling the calls and buying back the puts.