Mombo combo option strategy

Mombo combo option strategy

Posted: eu_info Date: 29.05.2017

Long Guts Explained | Online Option Trading Guide

Buying the put gives you the right to sell the stock at strike price A. Selling the call obligates you to sell the stock at strike price A if the option is assigned. If you remain in this position until expiration, you are probably going to wind up selling the stock one way or the other. If the stock price is above strike A, the call will be assigned, resulting in a short sale of the stock.

If the stock is below strike A, it would make sense to exercise your put and sell the stock. At initiation of the strategy, you will most likely receive a net credit, but you will have some additional margin requirements in your account because of the short call.

However, those costs will be fairly small relative to the margin requirement for short stock. So the strategy will be established for a net credit.

If the stock price is below strike A, you will usually pay more for the long put than you receive for the short call. So the strategy will be established for a net debit.

Disqus - Mombo Combo Option Strategy

The net credit received or net debit paid to establish this strategy will be affected by where the stock price is relative to the strike price. Dividends and carry costs can also play a large role in this strategy.

As a result, put prices will increase and call prices will decrease independently of stock price movement in anticipation of the dividend. If the cost of puts exceeds the price of calls, then you will have to establish this strategy for a net debit. The moral of this story is: Dividends will affect whether or not you will be able to establish this strategy for a net credit instead of a net debit. On the other hand, you may want to consider running this strategy on stock you want to short but that has a pending dividend.

If you are short stock, you will be required to pay any dividends out of your own account.

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The short call in this strategy creates theoretically unlimited risk. That is why it is only for the most advanced option traders. Potential profit is substantial if stock goes to zero, but limited to strike price A plus the net credit received or minus the net debit paid to establish the strategy.

If established for a net credit, the proceeds may be applied to the initial margin requirement. After this position is established, an ongoing maintenance margin requirement may apply. That means depending on how the underlying performs, an increase or decrease in the required margin is possible. Keep in mind this requirement is subject to change and is on a per-unit basis.

For this strategy, time decay is somewhat neutral. It will erode the value of the option you bought bad but it will also erode the value of the option you sold good. After the strategy is established, increasing implied volatility is somewhat neutral.

It will increase the value of the option you sold bad but it will also increase the value of the option you bought good. Options involve risk and are not suitable for all investors. For more information, please review the Characteristics and Risks of Standardized Options brochure before you begin trading options. Options investors may lose the entire amount of their investment in a relatively short period of time.

Multiple leg options strategies involve additional risks , and may result in complex tax treatments. Please consult a tax professional prior to implementing these strategies. Implied volatility represents the consensus of the marketplace as to the future level of stock price volatility or the probability of reaching a specific price point. The Greeks represent the consensus of the marketplace as to how the option will react to changes in certain variables associated with the pricing of an option contract.

There is no guarantee that the forecasts of implied volatility or the Greeks will be correct. System response and access times may vary due to market conditions, system performance, and other factors. TradeKing provides self-directed investors with discount brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice. You alone are responsible for evaluating the merits and risks associated with the use of TradeKing's systems, services or products.

Content, research, tools, and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy.

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Mombo combo option strategy - Australian regulated forex broker

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The Options Playbook Featuring 40 options strategies for bulls, bears, rookies, all-stars and everyone in between. The Strategy Buying the put gives you the right to sell the stock at strike price A. The Setup Sell a call, strike price A Buy a put, strike price A The stock should be at or very near strike A.

Who Should Run It All-Stars only NOTE: Break-even at Expiration Strike A plus the net credit received or minus the net debit paid to establish the strategy. Maximum Potential Profit Potential profit is substantial if stock goes to zero, but limited to strike price A plus the net credit received or minus the net debit paid to establish the strategy.

Maximum Potential Loss Risk is theoretically unlimited if the stock price keeps rising. TradeKing Margin Requirement Margin requirement is the short call requirement. As Time Goes By For this strategy, time decay is somewhat neutral. Implied Volatility After the strategy is established, increasing implied volatility is somewhat neutral. Use the Technical Analysis Tool to look for bearish indicators. Today's Trader Network All-Star Trade Report.

TradeKing All-Star Webinar Series and Live Events. The Setup Sell a call, strike price A Buy a put, strike price A The stock should be at or very near strike A Who Should Run It All-Stars only NOTE: The Sweet Spot You want the stock to completely tank.

Videos, webinars and more Stock trading videos TradeKing All-Star Webinar Series and Live Events Trader Network Forum.

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