By Darrell Martin
Chances are you have heard this phrase or something similar when you visit a fast food chain or a regular restaurant. The combo meal usually involves some sort of sandwich, chips or fries and a drink or shake, all put together for a convenient price.
You may be wondering how that pertains to trading. There are about 75 combos used in trading. The following are the names of the most often traded multi-leg strategies and a brief description about each one. The names are adapted from traditional options because of their risk/reward layout. Each strategy has become the industry standard in the Nadex education realm.
Binary Strangle: Buy strike above the market. Sell strike below the market. Breakout random walk play.
Binary Butterfly: Buy strike below the market. Sell strike above the market. Neutral premium play.
Spread Straddle: Three spreads–ignore the middle. Buy the upper spread. Sell the lower spread. Breakout random walk play.
Spread Iron Condor: Three spreads–ignore middle. Buy the lower spread. Sell the upper spread. Neutral premium play
Covered Call: Buy an ATM (At The Market) spread and Sell a premium spread. Long Directional with a Premium Benefit.
Covered Put: Sell an ATM spread and buy a premium spread. Short Directional with a Premium Benefit.
Married Call, Married Put–AKA Ultimate Hedge: Buy Future and Sell Correct Ratio of lower risk closer to proximity spreads. Sell a Future and Buy Correct Ratio of lower risk closer to proximity spreads.
Certain menu items at a restaurant may need clarification, some of the things above may not be clear to you. The following is like reading the descriptions of the food at the restaurant or the list of ingredients in the gourmet dishes offered in the finer dining establishments.
- Strategy: A way to use an Instrument
- System: The rules for entry and exit
- Neutral Premium Play: You think the market is going to stay in a range and you do not think it will move outside of that range. You will be making money on time instead of movement.
- Breakout Random Walk: You think the market is going to move quite a bit but you do not know which direction. You play both directions at one time.
- Premium: Similar to Insurance Premium. It is the cost. You are collecting Premium instead of paying it.
As you can see, there are many different combos that you can utilize in your trading day. Depending on what is happening in the markets and the strategies you want to employ, the choice of “Combo Meal” is up to you!