Combination (position)

A combination involves two different option positions and can take a variety of forms. You can buy both a call and a put on a given stock (if both are at the same strike price, this is known as a straddle; if at different strike prices this is known as a strangle), or you can also use options in conjunction with stock. For example, in a covered combination, you sell a covered call against stock you own, while also selling a put below the current price of the stock. This allows you to enhance your total returns in flat to up markets, while allowing you to buy more stock at lower prices and effectively lower your net cost to acquire the stock.