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Visually Analyze Option Strategies
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Long Combo




The Long Combo is a variation of the Long Synthetic Future. The only difference is

that we sell out-of-the-money (lower strike) puts and buy out-of-the-moey (higher strike) calls.


The net effect is an inexpensive trade, similar to a Long Stock or Long Futures

position, except there is a gap between the strikes.        


Market Opinion







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When To Use


When the investor wishes for a capital gain.




XXXX is trading at $35.25 on June 3, 2011.

Sell November 2011 30 strike puts at $1.65.

Buy November 2011 40 strike calls at $2.35.


The credit from the put helps to pay for the debit of the long call.




No outlay of money for something like a long stock position, with unlimited profit potential.


Risk vs. Reward


The risk is that you are open to unlimited losses until the stock hits zero. Reward is unlimited upside potential.


Net Upside


Unlimited profit once the stock starts to rise.


Net Downside


Unlimited downside risk. No protection.


Break Even Point


With net credits: higher strike minus net credit.

With net debits: higher strike plus net debit.


Effect Of Volatility




Effect Of Time Decay


Negative. Although the effect is small because you are buying and selling near the money options, thereby reducing time decay.


Alternatives Before Expiration


To stem a loss, when the stock breaks down through the stop loss, sell the position.


Alternatives After Expiration


Close out the position by selling the calls and buying back the puts.

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