I found a strategy called "covered combo" where you sell 1 put, 1 call, and purchase 100 shares of the underlying; is there a name for doing this without purchasing the 100 shares?

  • $\begingroup$ It seems like you are looking for a straddle. $\endgroup$ – skoestlmeier Sep 11 '18 at 19:51
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    $\begingroup$ @skoestlmeier Yes! Thank you, I kept seeing "long straddle" in every "option strategy list" I looked up and it didn't occur to me to change "long" to "short". $\endgroup$ – chew socks Sep 11 '18 at 19:56

The strategy you are asking for is called straddle. To be more precise, as you would like to sell one put and one call option, it is a short straddle.

Both options are referring to the same underlying security, strike price and expiration date. Be aware that it is a very risky strategy, as gains are limited and losses are not restricted.


The wikipedia article mentions

The risk is virtually unlimited as large moves of the underlying security's price either up or down will cause losses proportional to the magnitude of the price move.

I called a straddle a "very risky strategy", which should be true for many (often less informed) private investors, handling around with option-strategies and thus using derivatives in a speculative way. As stated in the comments, a straddle (as any derivative) is also very useful for other purposes than speculating.

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    $\begingroup$ Just extending this accurate answer - straddles are basic, and well traded, financial products calibrating the volatility. Personally I think 'very risky' is subjective and not really reflective of the general opinion, especially in a liquid market and/or where dynamic delta hedges can be used to mitigate losses. Additionally the unlimited losses brought about by this product are not really any different to buying some instrument and having its price fall indefinitely, which I also would not really claim would be classed as very risky. $\endgroup$ – Attack68 Sep 11 '18 at 20:50
  • $\begingroup$ Must a straddle mean the same strike/expiration? $\endgroup$ – chew socks Sep 11 '18 at 21:19
  • $\begingroup$ @Attack68 What does it mean to "calibrate the volatility"? $\endgroup$ – chew socks Sep 11 '18 at 21:20
  • $\begingroup$ Implied Volatility is obviously a key component of option or swaption pricing. The physical at the money straddle prices are those that traders use to imply volatility at those points and as a result calibrate their entire surface (or cube) when they consider interpolation and other factors $\endgroup$ – Attack68 Sep 11 '18 at 22:16
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    $\begingroup$ @Attack68 +1 for your valid objection! Indeed, i just thought about a simple (private) investor handling around with some option-strategies following some online promise of 'become rich with day-trading in three days'. Thats why i appreciate QF Stack-Exchange: You are absolutely right with your comment and i give it credit in editing my answer. $\endgroup$ – skoestlmeier Sep 12 '18 at 9:10

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