A position that involves or combines both call and put options on the same underlying asset. Examples include straddle, strangle, collar, and so on. Depending on the nature of a position (long position/ short position), an option combination may come in the form of a long combination or a short combination.

Combinations may have multiple legs: there are two-legged combinations and three-legged combinations. For example, a conversion is a three-legged combination, constructed using a long position in the underlying stock and a synthetic short position in the stock, which in turn consists of a long put and short call, both having the same exercise price and expiration date:

•  long stock: 100 shares @ knock out price (say, USD 20)
•  short call: 1 Nov 19 call @ 0.5
•  long put: 1 Nov 19 put @ 0.12

Where the short call and long put constitute the synthetic short position in the stock. Both expire in November, and are written on the same strike price of USD 19.

Combinations are designed to take advantage of multiple positions packaged together, whereby a trader may have a better position reflecting his/ her own expectations or views about market direction over the lifespan of the positions taken.