This is one of the basic strategies as it involves entering into one position i.e. buying the Call Option only. Any investor who buys the Call Option will be bullish in nature and would be expecting the market to give decent returns in the near future.
Strap 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 ..
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
Limited
Max Loss Occurs When Price of Underlying = Strike Price of Calls/Puts
Breakeven Point
Strike Price + Premium
Strike Price of Calls/Puts + (Net Premium Paid/2)
LONG CALL Vs STRAP - When & How to use ?
LONG CALL
STRAP
Market View
Bullish (Any investor who buys the Call Option will be bullish in nature and would be expecting the market to give decent returns in the near future.)
Neutral
When to use?
This strategy work when an investor expect the underlying instrument move in upward direction.
This strategy is used when the investor is bullish on the stock and expects volatility in the near future.
Action
Buying Call option
Buy 2 ATM Call Option, Buy 1 ATM Put Option
Breakeven Point
Strike price + Premium
Strike Price of Calls/Puts + (Net Premium Paid/2)
LONG CALL Vs STRAP - Risk & Reward
LONG CALL
STRAP
Maximum Profit Scenario
Underlying Asset close above from the strike price on expiry.
UNLIMITED
Maximum Loss Scenario
Premium Paid
Net Premium Paid
Risk
Limited
Limited
Reward
Unlimited
Unlimited
LONG CALL Vs STRAP - Strategy Pros & Cons
LONG CALL
STRAP
Similar Strategies
Protective Put
Strip, Short Put Ladder, Short Call Ladder
Disadvantage
• In this strategy, there is not protection against the underlying stock falling in value. • 100% loss if the strike price, expiration dates or underlying stocks are badly chosen.
• To generate profit, there should be significant change in share price. • Expensive strategy.
Advantages
• Less investment, more profit. • Unlimited profit with limited risk. • High leverage than simply owning the stock.
• Limited loss. • If share prices are moving then traders can book unlimited profit. • A trader can still book profit if the underlying falls substantially.
