Long Combo
Buy an OTM call and sell an OTM put at different strikes. A cheaper version of a synthetic long with a neutral zone in between.
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What is a Long Combo?
A long combo (also called a split-strike synthetic or risk reversal) is a bullish two-leg strategy where you buy an out-of-the-money call and sell an out-of-the-money put. Both options are away from the current stock price, creating a dead zone in the middle where neither option has value.
It is like a synthetic long stock, but with a gap between the strikes. A true synthetic uses the same strike for both options. A long combo uses different strikes — the call is above the stock price and the put is below. This makes the trade cheaper (or even free) but creates a range where you neither profit nor lose.
The long combo is a capital-efficient way to get bullish exposure. You are essentially saying: "I want to participate in the upside and I am willing to accept downside risk below a certain level."
How to Set It Up
- Buy 1 OTM call above the current price
- Sell 1 OTM put below the current price
- Same expiration
- Strike selection: Adjust the strikes to balance cost and risk. Selling the put closer to the money generates more credit to offset the call cost. Buying the call further out is cheaper but needs a bigger move.
- Expiration: 30-90 days depending on your time horizon.
- Net cost: Can be a small debit, small credit, or zero depending on strike selection and IV skew.
The position has less delta than a true synthetic (because both options are OTM), but it still creates meaningful bullish exposure.
When to Use This Strategy
Use a long combo when:
- You are bullish but want to spend little or nothing
- You would buy the stock at the put strike anyway
- You want a cheaper alternative to a synthetic long
- Volatility skew makes puts expensive and calls cheap (common in equities)
- You want to express a strong directional view with minimal upfront capital
The long combo is popular among traders who want leveraged bullish exposure without buying stock or paying full price for calls. It is the simplest way to get free or cheap upside participation.
Example Trade
Stock XYZ is trading at $100. You are bullish over the next 60 days.
- Buy 1 XYZ $105 call for $2.00
- Sell 1 XYZ $95 put for $2.50
- Net credit: $2.50 - $2.00 = $0.50 ($50 received)
If XYZ rallies to $115: The call is worth $10 ($1,000). The put is worthless. Profit: $1,000 + $50 = $1,050.
If XYZ stays between $95 and $105: Both options expire worthless. You keep the $50 credit. Nothing happens.
If XYZ drops to $90: The put costs $5 ($500). The call is worthless. Loss: $500 - $50 = $450.
If XYZ drops to $80: The put costs $15 ($1,500). The call is worthless. Loss: $1,500 - $50 = $1,450. Same risk as owning stock from $95.
Risk and Reward
- Max profit: Unlimited. The long call has no cap. Every dollar above $105 is profit.
- Max loss: (Put strike +/- net premium) x 100 if the stock goes to zero. In our example: ($95 - $0.50) x 100 = $9,450. Same as owning stock from $94.50.
- Breakeven: On the upside, the stock needs to exceed the call strike minus any credit: $105 - $0.50 = $104.50. On the downside, the put starts losing money below $95, but the credit offsets slightly: $95 - $0.50 = $94.50.
The dead zone between $95 and $105 is where you break even (keeping or paying minimal premium). The trade only generates meaningful P&L outside this range.
Tips and Common Mistakes
- The dead zone is a feature, not a bug. You do not need the stock to rally immediately. If it sits still, you lose almost nothing (or keep a small credit).
- The short put is a real obligation. If the stock drops, you may be assigned and forced to buy at the put strike. Only sell puts on stocks you would actually own.
- Use the credit to your advantage. If you can enter for a credit, the trade has no cost and you collect money just for waiting.
- Adjust strikes for more or less risk. Wider gap between strikes = bigger dead zone, lower delta, less exposure. Narrower gap = more like a synthetic, higher exposure.
- Compare to a risk reversal. In practice, long combo and risk reversal are often the same trade — just different names used by different trading communities.
Related Strategies
- Risk Reversal — same structure, often used interchangeably
- Synthetic Long Stock — same strikes version (higher delta, higher cost)
- Long Call — just the upside leg with no put obligation
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