Short Combo is the precise opposite of a Long Combo. Instead of nearly
replicating the Long Stock (or Futures) position, we nearly replicate the Short
Stock (or Futures) position by buying OTM puts and selling OTM calls.
net result is a virtually nil cost or even net credit trade that has uncapped
risk potential as the stock rises.
this strategy when you are in a bearish environment and wish to earn a capital
is trading at $35.10 on June 1, 2011.
August 2011 30 strike puts at $0.90.
August 2011 40 strike calls at $1.00
this strategy, you use no capital and yet are able to simulate a short stock
position, and the ability to leg in and leg out as you wish.
risk is uncapped if the stock rises, while the reward equals lower strike plus
net credit, or less net debit.
a net credit.
the stock rises, your risk is uncapped.
net credits: higher strike plus net credit.
net debits: lower strike minus net debit.
Of Time Decay
You are reducing time decay by buying and selling near-the-money options, so
time decay is minimal.
close out the position before the last month of expiration.
stem a loss, sell if the stock increases up through the stop loss.
the position by selling the puts and buying back the calls.