An option combination that entails the simultaneous purchase of a call option and put option on the same underlying, but with different strike prices, different expiration dates, or both different strike prices and different expiration dates.

The long call option allows the trader to earn a profit when it expires in the money, and the long put option allows the trader to earn a profit if it would expire in the money. If both options expire out of the money, then the trader loses the premiums paid to purchase both options. Since the trader is purchasing a call and a put option, premiums need to be paid to the writers (sellers), making this position a debit combination.

Thus, in order to profit on the trade, the trader must first recover the total cost of this combination. To determine the breakeven points of a long combination, the net cost of the combination need to be added to the long call’s strike price, and the net cost of the combination need to be subtracted from the long put’s strike price – anything above the upper (call option’s) breakeven point would be a profit, and anything below the lower (put option’s) breakeven point would be a profit. The maximum gain for a long combination is unlimited, while the maximum loss for it is simply the total cost of the option premiums. For example, an investor can establish a long combination by buying a call option on XYZ stock with June expiration and a strike price of $65 for a premium of $3 and buying a put option on the same stock and with the same expiration month and a different strike price ($55) for a premium of $2.5. This position can be summarized as follows:

• Buy 1 XYZ June 65 Call @ 3
• Buy 1 XYZ June 55 Put @ 2.5
• Market price of XYZ stock: $60

The trader has initiated a long combination since the “long” underlying security and the expiration months are the same, but the strike prices are different.

The long combination is similar to a long straddle.

For more on long combinations, see: long combination (tutorial).