Compare Strategies
COVERED PUT | STRAP | |
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About Strategy |
Covered Put Option StrategyThis strategy is exactly opposite to Covered Call Strategy. Here the investor is neutral or moderately bearish in nature and wants to take advantage of the price fall in the near future. The trader will short one lot of stock future. Now the trader will short ATM Put Option, the option strike price will be his exit price. If the prices rally above the strike price, the |
Strap Option StrategyStrap Strategy is similar to Long Straddle, the only difference is the quantity traded. A trader will buy two Call Options and one Put Options. In this strategy, a trader is very bullish on the market and volatility on upside but wants to hedge himself in case the stock doesn’t perform as per his expectations. This strategy will make more profits compared to long straddle sin .. |
COVERED PUT Vs STRAP - Details
COVERED PUT | STRAP | |
---|---|---|
Market View | Bearish | Neutral |
Type (CE/PE) | PE (Put Option) + Underlying | CE (Call Option) + PE (Put Option) |
Number Of Positions | 2 | 3 |
Strategy Level | Advance | Beginners |
Reward Profile | Limited | Profit Achieved When Price of Underlying > Strike Price of Calls/Puts + (Net Premium Paid/2) OR Price of Underlying < Strike Price of Calls/Puts - Net Premium Paid |
Risk Profile | Unlimited | Max Loss Occurs When Price of Underlying = Strike Price of Calls/Puts |
Breakeven Point | Futures Price + Premium Received | Strike Price of Calls/Puts + (Net Premium Paid/2) |
COVERED PUT Vs STRAP - When & How to use ?
COVERED PUT | STRAP | |
---|---|---|
Market View | Bearish | Neutral |
When to use? | The Covered Put works well when the market is moderately Bearish. | This strategy is used when the investor is bullish on the stock and expects volatility in the near future. |
Action | Sell Underlying Sell OTM Put Option | Buy 2 ATM Call Option, Buy 1 ATM Put Option |
Breakeven Point | Futures Price + Premium Received | Strike Price of Calls/Puts + (Net Premium Paid/2) |
COVERED PUT Vs STRAP - Risk & Reward
COVERED PUT | STRAP | |
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Maximum Profit Scenario | The profit happens when the price of the underlying moves above strike price of Short Put. | UNLIMITED |
Maximum Loss Scenario | Price of Underlying - Sale Price of Underlying - Premium Received | Net Premium Paid |
Risk | Unlimited | Limited |
Reward | Limited | Unlimited |
COVERED PUT Vs STRAP - Strategy Pros & Cons
COVERED PUT | STRAP | |
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Similar Strategies | Bear Put Spread, Bear Call Spread | Strip, Short Put Ladder, Short Call Ladder |
Disadvantage | • Limited profit, unlimited risk. • Trader should have enough experience before using this strategy. | • To generate profit, there should be significant change in share price. • Expensive strategy. |
Advantages | • Investors can book profit when underlying stock price drop, move sideways or rises by a small amount. • Able to generate monthly income. • Able to generate profit from fall in prices or mild increase in the prices. | • Limited loss. • If share prices are moving then traders can book unlimited profit. • A trader can still book profit if the underlying falls substantially. |