Option combination strategies
Besides buying or selling single options, there are many other possible strategies that involve positions in multiple options simultaneously, as well as combining options with positions in the underlying assets. While there are infinite combinations possible, we outline one common combination below.
A long straddle involves buying a call and put option on the same underlying asset with the same strike price and expiration date. This strategy can be used by an investor that believes the price of the underlying asset will move significantly, but is unsure about the direction of the move. The maximum loss of the strategy is limited to the sum of the premiums paid for the call and the put options. The further away from the strike price that the price of the underlying asset moves, the higher the pay-off of the straddle.