A combination is an choice trading strategy that involves the buy and/or sale of both call and put options occurring for the same underlying asset.
Call & Put Buying Combinations
Straddle
The straddle is an huge profit, limited risk other trading strategy that is employed once the options trader believes that the price of the underlying asset will make a hermetic influence in either running in the near highly developed. It can be produce happening by buying an equal number of maintenance call and put options behind the connected expiration date.
Strangle
Like the straddle, the strangle is plus a strategy that has limited risk and utter profit potential. The difference in the midst of the two strategies is that out-of-the-allocation options are purchased to construct the strangle, lowering the cost to establish the tilt but at the same time, a much larger impinge on in the price of the underlying is required for the strategy to be profitable.
Strip
The strip is a modified, more bearish savings account of the common straddle. Construction is same to the straddle except that the ratio of puts to calls purchased is 2 to 1.
Strap
The strap is a more bullish variant of the straddle. Twice the numbers of call options are purchased to involve the straddle into a strap.
Synthetic Underlying
Combinations can be used to make options positions that have the same payoff pattern as the underlying. These positions are known as synthetic underlying positions. Using equity options as an example, a synthetic long combined position can be created by buying at-the-money call and selling an equal number of at-the-maintenance put options.
