Combinations

What this video covers

• What a combination (also called a strangle) actually is: a call and a put on the same underlying security with different strike prices and/or different expirations
• Why a long combination is cheaper than a long straddle, since both legs are out of the money (OTM)
• How to calculate max loss, upside breakeven, and downside breakeven on a long combination using total premiums paid
• Why max loss on a long combination spans an entire range between the two strikes, not a single price point
• Why a short combination carries unlimited upside risk from the naked call plus substantial downside risk from the naked put
• The one rule that separates the two strategies: same strike equals straddle, different strike equals combination
• When the writer of a short combination achieves max gain, and why a wider profit zone does not reduce risk