Strips and Straps Option Strategy

I have already written about call and put options, now I will be telling about strips and straps option strategy.

Strips – A strips consists of a long position in one call and two puts with. The person who is doing this strategy believes that there will be a big stock price move but the stock price is more likely to fall than it is to rise. Under strips person make profit when there is big move in either direction but it is more when the move is downside. Hence strips is taken by those persons who want to take a position in a stock which is very volatile and they except it to fall sharply

Straps – A straps consists of a long position in two calls and one put with the same exercise price and expiration date. The person who is doing this strategy believes that there will be a big stock price move but in this case person believes that stock price is more likely to rise than fall. Under straps person makes more profit when stock move in upside direction than in downside direction.

Hence strips are taken by person who is bearish and straps are taken by those person who are bullish on the underlying asset.

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