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
This strategy is implemented when a trader is bullish on the underlying stock/index in the short term say 2 months or so. A trader will write one Near Month OTM Call Option and buy one next Month OTM Call Option, thereby reducing the cost of purchase, with the same strike price of the same underlying asset. This strategy is used when a trader wants to make prof ..
Upper Breakeven Point = Strike Price of Calls/Puts + Net Premium Paid, Lower Breakeven Point = Strike Price of Calls/Puts - (Net Premium Paid/2)
Stock Price when long call value is equal to net debit.
STRIP Vs BULL CALENDER SPREAD - Risk & Reward
STRIP
BULL CALENDER SPREAD
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
You have unlimited profit potential to the upside.
Maximum Loss Scenario
Net Premium Paid + Commissions Paid
Max Loss = Premium Paid + Commissions Paid
Risk
Limited
Limited
Reward
Unlimited
Unlimited
STRIP Vs BULL CALENDER SPREAD - Strategy Pros & Cons
STRIP
BULL CALENDER SPREAD
Similar Strategies
Strap, Short Put Ladder
The Collar, Bull Put Spread
Disadvantage
Expensive., The share price must change significantly to generate profit., High Bid/Offer spread can have a negative influence on the position.
• Limited profit even if underlying asset rallies. • If the short call options are assigned when the underlying asset rallies then losses can be sustained.
Advantages
Profit is generated when the share price changes in any direction., Limited loss., The profit is potentially unlimited when share prices are moving.
• Limited losses to the net debit. • Enable trader to book profit even if underlying asset stays stagnant. • If the market trends reverse, cashing in from stock price movement at limited risk.
