Combinations

What this video covers

• Why a combination is also called a strangle, and how it differs from a straddle by using different strike prices and/or different expiration months
• The structure of a long combination: buying an out-of-the-money (OTM) call and an OTM put on the same stock, and why this costs less upfront than a long straddle
• How max loss on a long combination spans the entire range between the two strike prices, not a single point, and what happens if the stock expires between those strikes
• The upside breakeven formula: call strike plus total premiums paid, and the downside breakeven formula: put strike minus total premiums paid
• The structure of a short combination: selling a call and selling a put with different strikes, and why the wider profit zone does not mean lower risk
• Why a short combination carries unlimited upside risk from the naked call, and how to calculate the substantial downside risk using the put strike minus total premiums received
• The single exam-day rule for identification: same strike plus same expiration equals straddle, different strike or different expiration equals combination