Strip Strategy is the opposite of Strap Strategy. When a trader is bearish on the market and bullish on volatility then he will implement this strategy by buying two ATM Put Options & one ATM Call Option, of the same strike price, expiry date & underlying asset. If the prices move downwards then this strategy will make more profits compared to short straddle because of the
Long Combo Option Trading Strategy is implemented when a trader is bullish in nature and expects the stock price to rise in the near future. Here a trader will sell one ‘Out of the Money’ Put Option and buy one ‘Out of the Money’ Call Option. This trade will require less capital to implement since the amount required to buy the call will be covered by the amount received ..
Upper Breakeven Point = Strike Price of Calls/Puts + Net Premium Paid, Lower Breakeven Point = Strike Price of Calls/Puts - (Net Premium Paid/2)
Call Strike + Net Premium
STRIP Vs LONG COMBO - When & How to use ?
STRIP
LONG COMBO
Market View
Neutral
Bullish
When to use?
When a trader is bearish on the market and bullish on volatility then he will implement this strategy.
This strategy is used when an investor Bullish on an underlying but don't have the required capital or the risk appetite to invest directly into it.
Action
Buy 1 ATM Call, Buy 2 ATM Puts
Sell OTM Put Option, Buy OTM Call Option
Breakeven Point
Upper Breakeven Point = Strike Price of Calls/Puts + Net Premium Paid, Lower Breakeven Point = Strike Price of Calls/Puts - (Net Premium Paid/2)
Call Strike + Net Premium
STRIP Vs LONG COMBO - Risk & Reward
STRIP
LONG COMBO
Maximum Profit Scenario
Price of Underlying - Strike Price of Calls - Net Premium Paid OR 2 x (Strike Price of Puts - Price of Underlying) - Net Premium Paid
Underlying asset goes up and Call option exercised
Maximum Loss Scenario
Net Premium Paid + Commissions Paid
Underlying asset goes down and Put option exercised
Risk
Limited
Unlimited
Reward
Unlimited
Unlimited
STRIP Vs LONG COMBO - Strategy Pros & Cons
STRIP
LONG COMBO
Similar Strategies
Strap, Short Put Ladder
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Disadvantage
Expensive., The share price must change significantly to generate profit., High Bid/Offer spread can have a negative influence on the position.
• Losses can keep on increasing as the price of stock goes down. • High risk strategy.
Advantages
Profit is generated when the share price changes in any direction., Limited loss., The profit is potentially unlimited when share prices are moving.
• Capital investment is low and returns are high. • Unlimited reward, returns keep on increasing with the increase on stock price. • Leverage facility provided by this strategy is very beneficial.
