The Strap is a Non-Directional Options Strategy with a Bullish bias. It is similar to a Straddle, except two At The Money calls are purchased as well as one At The Money put (where a Straddle has an even number of Calls and Puts).
The Strap is profitable when there is a strong movement in the price of the Underlying asset or commodity, especially to the up-side. It has a defined risk limited to the debit paid to purchase the three Options (2 x Cal and 1 x Put).
Straps benefit from an increase in Volatility and they have many of the same characteristics of a Straddle (and in some textbooks, they are referred to as Strap Straddles).
The inverse strategy to a strap is the Strip, which is based on the same principle, except it has a Bearish bias via the use of two Long puts rather than calls.
Contributed by: Ralph Windsor
The Strap is profitable when there is a strong movement in the price of the Underlying asset or commodity, especially to the up-side. It has a defined risk limited to the debit paid to purchase the three Options (2 x Cal and 1 x Put).
Straps benefit from an increase in Volatility and they have many of the same characteristics of a Straddle (and in some textbooks, they are referred to as Strap Straddles).
The inverse strategy to a strap is the Strip, which is based on the same principle, except it has a Bearish bias via the use of two Long puts rather than calls.
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