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
Straddle
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 money call and put options with the same
expiration date.
Strangle
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.
