≡ Menu

Long Combo when Both Calls and Puts Make Money

Long combo is a high-risk high-reward strategy. If successful you can double your money in a few days. If not you may lose a lot in a few days.

NOTE: At the time of writing this post Nifty Lot size was 50 please keep this in mind while reading.

Lets take an example. Recently in August 2013 Nifty made a low of about 5150. INR was at almost Rs.67 per USD and the whole world was abuzz with the FED tapering in September 2013 (which eventually did not happen but that is a different story.)

Who knew at that time that Nifty will move up more than 20% within 2 months? At the time of writing today Nifty closed at just a few decimals below 6300.

Now lets go back to the long combo.

What exactly is the strategy?

If you are absolutely certain of a STRONG up move (STRONG as in ALL Caps) you can implement this strategy. Again a warning: this strategy should be implemented only if you are absolutely certain of the move else your losses can be unlimited.

Lets go back to August 2013. If someone wanted to implement this strategy what he needs to do is this. He will sell a ATM/OTM (At The Money or Out of The Money) Put. Say he sells 4900 Put for 25. With the money he receives he buys a OTM call. Lets suppose he then goes on to buy 5500 call for 25. How much does it cost him to buy the call? ZERO!!!

You see when he sold the 4900 put he got Rs.50*25 = 1250 in his account. Using this money he then buys the 5500 call for 25.

Look at the image below for profit and loss explanation:

long combo profit loss

Long Combo Profit Loss

As you can see from the image above – If Nifty remains between 4900 and 5500 before expiration the trader neither loses money nor makes any money. But if Nifty is below 4900, the trader losses money because the sold put will be in the money. If Nifty is above 5500, the call will be in the money and the trader makes a profit. The beauty of the trade is that the trader did not pay a single rupee to buy the call from his pocket – when he sold the put he got that money. So essentially whatever he makes from selling the call is his profit.

Imagine after the trade Nifty starts to move up and how. Now lets suppose Nifty reaches 5600 within a few days. You know what will be the value of his 5500 call? More than 100 + the premium as it is still some time for expiry. Which also means if he sells the call he will make 4+ times his investment that actually cost him nothing.

People with a lot of money and some knowledge do this: What if you sold puts worth 1 lac and bought 80 lots of 5500 calls ((100000/50)/25 = 80) and sold it at 125?

Here is the math:

Amount invested = 0. (He got 1 lac from selling puts that he invested)
Premium received = 125*50*80 = Rs. 500,000.00 (Five lacs)
ROI = Is there any point calculating this?

BTW I have myself seen a call go from 1 to 15 in a few days. 15 times your money in a few days. That’s Nifty option for you.

As always, so why people don’t do this?

Other than a few very rich investors who have appetite for risk, no one does this. WHY?

Lets discuss what happens if his view was wrong?

Lets simplify this to 2 lots. 2 lots sold (4900 put) and 2 bought (5500 call) – both at 25. Nifty at 5200.

You see the beauty of this strategy is this that if Nifty does not go below 4900 – the person who has done this is at no risk. But what happens if it starts moving below 4900?

Lets also suppose he does nothing and waits till expiry hoping against hope that Nifty will not expire below 4900. But unfortunately hope has no business in Nifty trading. He was wrong and Nifty expired at 4700.

How much is his loss?

4900-4700 = 200 * 50 * 2 = Rs.20,000.00 (Rs. Twenty Thousand)

The loss keeps increasing depending on how deep Nifty closes.

Do you want to see how much did that wealthy man who sold 80 lots lose?

4900 – 4700 = 200 * 50 * 80 = Rs.8,00,000.00 (No that is not Eighty Thousand as you have guessed. It is Rs. Eight Lakhs Loss.)

Ok a smart investor will actually take a stop loss much earlier. But this was required to tell you how much losses you can make if you are slightly negligent. Basically it becomes a naked option sell where you need to know where to stop your losses if required.

Another problem with this strategy is that if you were right you may not be able to predict the markets and will book profits much earlier. Well over a long period of time you will NOT be right every time and one loss can wipe out your entire profits of months.

Therefore Long Combo should be done when you are 100% certain of a move.

Note that this can be reversed also if you feel Nifty will fall sharply. In that case you will have to sell calls and buy puts. You will be long on puts and short on calls. The results will be same. That is if Nifty falls you make unlimited money and if it goes up you make unlimited losses.

Again Long combo is a great strategy but a double edged sword. If your view was right, you profit from both calls and puts, but both will make losses if your view was wrong.

Therefore this strategy is played mostly by professionals.

It is better to trade without thinking about the direction. Even if you are 100% sure sometimes the move does not come or moves comes in opposite direction. This is where most traders lose money. That is the main reason I do not predict direction still make money almost every time. Most option traders do not know that options are great to trade non-directional strategies where they can make good money without bothering about direction. That is the reason I have designed a course which can help you learn these strategies. Remember when direction is not involved you can trade peacefully. Forget about money, if you are not living a peaceful life then what difference money can make whether you have it more or less?

Please like & share my blog with your friends:

Hi, I am Dilip Shaw, owner of this website. I am a trader like you. I have been trading since 2007, but lost a lot of money till 2010. I then stopped trading and studied options like college exams. Started trading again from 2011 and never looked back since. I did a lot of research, read books and did countless paper-trading before being profitable. You can read about me here.

My conservative trading course since 2014 is helping many retail traders just like you who have a job or business make consistent profits like this:

What Traders Say About This Course
Testimonials Year 2015
Testimonials Year 2015 Page 2
Testimonials Year 2015 & 2016
Testimonials Year 2016
Testimonials Year 2017
Testimonials Year 2018
Testimonials Year 2019
Testimonials Year 2020 to 2023
What People Say Just After Reading My Course
Emotional Testimonial by a Young Woman Trader and Her Mother
One Of My Client Is Making Rs.25k Per Week
Difference Between Other Courses And Mine
What Others Charge for Courses

You can do this course from your home. Some traders make amazing profits like Rs. 16.26 lakhs profit in 5 days though results may differ for all.

This course helps you learn to trade conservative option strategies for monthly income. Once you finish the course you can start trading immediately. You can start trading from any day. No need to wait for expiry. You will make profits consistently.

This course is good if you have a regular job or business. You DO NOT NEED to monitor your trades every second.

What You Get?

Before reading please understand that for all 5 strategies, strike selection will be taught. Strike selection while trading Options is the most essential part to succeed.

You get two conservative non-directional strategies on options, one conservative stock option strategy and two conservative directional strategies on Future & Option combination.

Non directional trades are profitable 80% of the times and make 3-5% per trade (Results may vary).

Directional strategy makes money fast. It does not matter which side the stock moves. In fact you make more when you are wrong in the Future trade. 🙂 Some amazing profits possible here.

The stock option trade makes 30,000 in one trade and if SL is hit there is a way to recover losses plus make 30k in that trade.

Technical knowledge is NOT required. No need to monitor trades every second.

In the course you will learn how to select the strike prices. You learn when to trade, which strikes to sell which to buy, how much profit target you should be looking for, the best place to take stop loss and what to do after taking stop loss – means how to get that money back. The success rate is more than 80%.

Since trades are properly hedged there is no stress in trading my strategies.

I am very confident that you will make money trading my strategies. To help you succeed I offer few months support for FREE.

11 Reasons Why You Should Do The Course:
1. TA Knowledge NOT required
2. NO Software Required
3. Regular Monitoring NOT Required
4. Continue with Your Job
5. Do Course From Your Home
6. 100% Hedged
7. Stress-Free Trading
8. Not too much money needed to trade
9. Scaling Possible
10. One Time Fee
11. FREE Support For Months
To know more Call/SMS/WhatsApp me on 9051143004 or email me now. I know English and Hindi.

Read the details of the course here.

If you want to enroll for the course you can do so here.

P.S: So many years of trading has thought me one thing - it is always better to make small profits month after month, rather than lose money month after month trying to make too much money. It never happens. But small money accumulated month after month can become very big in only a few years.

Privacy Policy | Disclaimer

WhatsApp or Call me: 9051143004

If you have any question you can contact me.

You can read about me here and my trading mistakes here.

TheOptionCourse.com Copyright @ All Rights Reserved
Dilip Shaw, Founder

Copyright Infringement: Any act of copying, reproducing or distributing any content in the site or newsletters, whether wholly or in part, for any purpose without my permission is strictly prohibited and shall be deemed to be copyright infringement.

INCOME DISCLAIMER: Any references in this site of income made by the traders are given to me by them either through Email or WhatsApp as a Thank You message. However every trade depends on the trader and his level of risk taking capability, knowledge and experience. Moreover stock market investments and trading are subject to market risks. Therefore there is no guarantee that everyone will achieve the same or similar results. My aim is to make you a better & disciplined trader with the stock trading and investing education and strategies you get from this website.

DISCLAIMER: I am NOT an Investment Adviser (IA). I am an Authorized Person (AP) of a Stock Broker. In other words I am a sub-broker. I DO NOT give tips or advisory services by SMS, Email, or WhatsApp or any other forms of social media. I strictly adhere to laws of my country. I only offer education for free on finance, risk management & investments in stock markets through the articles in this website. You must consult an authorized Investment Adviser (IA) or do thorough research before investing in any stock or derivative using any strategy given in this website. I am not responsible for any investment decision you take after reading any article in this website. Click here to read the disclaimer in full.

The Collar Low Profits Lower Loss Trading Strategy
How To Reduce the Cost of Buying an Option

About the author: I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

{ 4 comments… add one }
  • Vijay Kumar July 3, 2015, 11:37 pm

    Again a Wonderful strategy explained thoroughly by the Master of Options.
    I may try it on coming Monday after the Outcome of Greece!


    • Dilip Shaw July 4, 2015, 5:59 pm

      Oh Great. Please share your experiences here after the trade is over. Thanks.

  • harish chouhan July 9, 2016, 12:26 pm

    but before the brexit premium were too high to take long combo.
    the cost for taking the long combo was almost ₹180.
    after brexit it was profitable.

    • Dilip Shaw July 9, 2016, 1:06 pm

      Yes that is why it is good trade only when you are certain of huge move else do not trade.

Leave a Comment

Social Share Buttons and Icons powered by Ultimatelysocial