combination

Combination

When an investor holds a position in both call and put options on the same asset.

Notes:

There are various types of combination spreads, including straddles and strangles.

See also: Call, Option, Put, Straddle, Strangle

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Combination

Applies to derivative products. Arrangement of options involving two long or two short positions with different expiration dates or strike (exercise) prices. See: Straddle.

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combination

A union of two or more entities, either by merging one or more of the entities into another of the entities or by consolidating the entities into a new entity.

Case Study Lucas Industries PLC and Variety Corporation, two manufacturers of auto and truck brakes, agreed in June 1996 to a combination to be called Lucas-Variety PLC. Managements of both firms indicated the combination was necessary so as to remain competitive in a market that demanded a global presence. The combination also was expected to produce cost savings and to result in tax savings by allowing the new firm to benefit from Lucas's tax-loss carryforwards. Terms of the agreement called for the two firms to merge into a new company through an exchange of shares. Variety's owners would receive approximately 38% of the shares of the new firm while Lucas's owners would receive the other 62% of the shares. The market prices of both firms' shares rose following announcement of the agreement, an indication that investors agreed with managements' assessment of the financial benefits of the merger.