Combo trades, also known as multi-leg options strategies, allow traders to simultaneously enter multiple positions to create structured trades. They help optimize profit potential while controlling downside risk.
Overview
A combo trade – or a multi-leg strategy – refers to executing multiple options contracts at once to create a structured strategy. These trades involve combining long/short calls, puts, or both, with different strike prices and expirations to achieve a specific risk-return profile.
Common types of combo trades include:
Spreads (Bull/Bear): Buying and selling options at different strike prices to cap risk and reward.
Straddles & Strangles: Betting on volatility by holding both calls and puts.
Iron Condors & Butterflies: Advanced strategies for range-bound markets.
By using multi-leg strategies, traders can create any payoff structure they want, as well as fine-tune their portfolios better than just buying directional calls/puts.
When to Use Multi-leg Strategies
Combo trades aren’t just for advanced traders. They can be useful in different market conditions:
Trending Markets: Bull or Bear Spreads allow for controlled directional exposure.
Volatile Markets: Straddles & Strangles benefit from high price swings.
Sideways Markets: Iron Condors & Butterflies profit when price remains range-bound.