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.
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 ..
Upper Breakeven Point = Strike Price of Calls/Puts + Net Premium Paid, Lower Breakeven Point = Strike Price of Calls/Puts - (Net Premium Paid/2)
LONG CALL Vs STRIP - When & How to use ?
LONG CALL
STRIP
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.
When a trader is bearish on the market and bullish on volatility then he will implement this strategy.
Action
Buying Call option
Buy 1 ATM Call, Buy 2 ATM Puts
Breakeven Point
Strike price + Premium
Upper Breakeven Point = Strike Price of Calls/Puts + Net Premium Paid, Lower Breakeven Point = Strike Price of Calls/Puts - (Net Premium Paid/2)
LONG CALL Vs STRIP - Risk & Reward
LONG CALL
STRIP
Maximum Profit Scenario
Underlying Asset close above from the strike price on expiry.
Price of Underlying - Strike Price of Calls - Net Premium Paid OR 2 x (Strike Price of Puts - Price of Underlying) - Net Premium Paid
Maximum Loss Scenario
Premium Paid
Net Premium Paid + Commissions Paid
Risk
Limited
Limited
Reward
Unlimited
Unlimited
LONG CALL Vs STRIP - Strategy Pros & Cons
LONG CALL
STRIP
Similar Strategies
Protective Put
Strap, Short Put 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.
Expensive., The share price must change significantly to generate profit., High Bid/Offer spread can have a negative influence on the position.
Advantages
• Less investment, more profit. • Unlimited profit with limited risk. • High leverage than simply owning the stock.
Profit is generated when the share price changes in any direction., Limited loss., The profit is potentially unlimited when share prices are moving.
