Combination

What does 'Combination' mean

Combination is the act of combining two or more financial instruments or businesses. In the financial context, the term "combination" generally refers to an option trading strategy that involves the purchase and/or sale of both call and put options on the same asset. Option combinations are popular with experienced traders and investors because they can be tailored to provide specific risk-reward payoffs that suit the investor's individual risk tolerance and preferences.

BREAKING DOWN 'Combination'

Option combinations span a wide range of broad strategies, from collars and fences to straddles and strangles. There are then more specific strategies as the iron condor, which involves buying and holding four different options with different strike prices. One disadvantage of such strategies, however, is the commission costs incurred and trading spreads, especially for more complex strategies that involve the simultaneous purchase and sale of a number of options.

RELATED TERMS
  1. Strangle

    An options strategy where the investor holds a position in both ...
  2. Iron Condor

    An advanced options strategy that involves buying and holding ...
  3. Leg

    A leg is one component of a derivatives trading strategy, in ...
  4. Call Ratio Backspread

    A very bullish investment strategy that combines options to create ...
  5. Horizontal Spread

    An options strategy involving the simultaneous purchase and sale ...
  6. Long Leg

    The part of an option spread strategy that involves buying an ...
Related Articles
  1. Options & Futures

    Get Familiar with These 6 Option Strategies

    When you’re ready to move beyond the basics of investing, it’s time to learn your options.
  2. Options & Futures

    Three Ways to Profit Using Put Options

    A brief overview of how to profit from using put options in your portfolio.
  3. Trading Strategies

    A Guide Of Option Trading Strategies For Beginners

    Options offer alternative strategies for investors to profit from trading underlying securities, provided the beginner understands the pros and cons.
  4. Fundamental Analysis

    4 Popular Options Strategies for 2016

    Learn how long straddles, long strangles and vertical debit spreads can help you profit from the volatility that stock analysts expect for 2016.
  5. Options & Futures

    4 Options Strategies To Know

    Here is a quick introduction to four options strategies that traders should know.
  6. Options & Futures

    Three Ways to Profit Using Call Options

    A brief overview of how to provide from using call options in your portfolio.
  7. Options & Futures

    Stock Options: What's Price Got To Do With It?

    A thorough understanding of risk is essential in options trading. So is knowing the factors that affect option price.
  8. Options & Futures

    Introduction - Day Trading and Options

    Options have not been a tradition part of day-trading strategy, but this is quickly changing.
  9. Options & Futures

    How To Profit From Volatility

    We explain four key strategies to profit fom volatility in markets.
  10. Options & Futures

    The Basics of Options Profitability

    The adage "know thyself"--and thy risk tolerance, thy underlying, and thy markets--applies to options trading if you want it to do it profitably.
RELATED FAQS
  1. Do options make more sense during bull or bear markets?

    Understand how options may be used in both bullish and bearish markets, and learn the basics of options pricing and certain ... Read Answer >>
  2. What options strategies are best suited for investing in the financial services sector?

    Learn the options strategies top traders use to take advantage of the volatility in the financial services sector and the ... Read Answer >>
  3. What options strategies are best suited for investing in the aerospace sector?

    Learn how investors profit from volatility in the aerospace sector by employing options strategies, which include the long ... Read Answer >>
  4. When does one sell a put option, and when does one sell a call option?

    The incorporation of options into all types of investment strategies has quickly grown in popularity among individual investors. ... Read Answer >>
  5. What is spread hedging?

    Learn about one of the most common risk-management strategies options traders use, called spread hedging, to limit exposure ... Read Answer >>
  6. What options strategies are best suited for investing in the retail sector?

    Learn how savvy investors employ options strategies such as the long straddle and long strangle to profit from the volatile ... Read Answer >>
Hot Definitions
  1. Physical Capital

    Physical capital is one of the three main factors of production in economic theory. It consists of manmade goods that assist ...
  2. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  3. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  4. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  5. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  6. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
Trading Center