Option Strategies
Module Units
- 1. Introduction
- 2. Why Trade Options?
- 3. Option Chain
- 4. Option Strategies
- 5. Options Buying Vs Option Selling
- 6. Long Call
- 7. Short Call
- 8. Long Put
- 9. Short Put
- 10. Long Call Vs Short Put
- 11. Long Put Vs Short Call
- 12. Bull Spread Strategy
- 13. Bear Spread Strategy
- 14. Call Ratio Back Spread Strategy
- 15. Put Ratio Back Spread Strategy
- 16. Hedging Strategy - Covered Call
- 17. Hedging Strategy – Protective Put
- 18. Collar Strategy
- 19. Straddle
- 20. Strangle
- 21. Strip Strategy
- 22. Strap Strategy
- 23. Butterfly Strategy
- 24. Modified Butterfly Strategy
- 25. Long Condor Strategy
- 26. Conclusion
Strap Strategy
The strap strategy is a modified and bullish version of the straddle strategy. It involves buying more At-the-money calls and lesser puts.
We need to make sure that both the calls and puts should be of the same underlying stock, strike price and expiration date.
We conduct a strap strategy by:
1. Buy 2 Call AT-THE-MONEY (ATM)
2. Buy 1 Puts AT-THE-MONEY (ATM)
We use this strategy when we expect volatility to increase in the near future and market direction to be on the bullish side. Large profit is attainable with the strap strategy when the underlying stock price makes a strong move either upwards or downwards at expiration, but gains are made faster and larger if the movement of the underlying is on the upside. The risk is limited to the net premium paid for the position and the maximum profit is unlimited.
The most important thing for all these strategies, i.e. Straddle, Strangle, Strip and Strap is Volatility. The market has to make big moves in order for these strategies to make money for you.
Strap strategy
Option Chain:
Maximum Profit : Unlimited
Maximum Loss : Limited to the net Premium Paid = 300
Upper Break-even Point = Strike price + (net premium paid/2) = 6000 + (300/2) = 6150
Lower Break-even Point = Strike price - net premium paid = 6000 - 300 = 5700
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