A strap is an options strategy involving one put and two calls with the same strike and expiration. Traders use it when they believe a large move in the underlying asset is likely although the direction is still uncertain. All options in a strap are at the money.
Key Takeaways
A strap is an options combination that involves purchasing two at the money calls and one at the money put.
It is essentially an ATM straddle with an additional call option, making it a bullish-leaning strategy.
The strap strategy offers a good fitfor traders seeking toprofitfromhigh volatility and underlying price movementthat will still profit if the price declines.
Long-term option traders may want to avoid straps because theywill incurconsiderable premium generated bytime decay.
Understanding Strap
A strap, also referred to as a "triple option", is similar to a straddle, but because there are two calls for every put, the strategy is bullish. This is in contrast to a strip, which involves two puts and one call, making it a bearish straddle modification.
As with its simpler options strategy cousin, known as a straddle, a strap profits when the underlying asset makes a large move from its current price. The holder profits no matter which way the underlying moves, as long as it covers the premiums paid for the options.
With a strap, however, there is a bullish bias as the holder profits twice as much from an up move. That said, the trader can still make money if the underlying falls substantially. A short strap would involve selling one put and two calls but this strategy profits when the underlying does not move.
The profits of a strap strategy are unlimited but the risk is controlled. Maximum loss occurs if the underlying asset does not move at all by the time the options expire. In that case, the options become worthless and the loss is limited to the premiums paid for the three options.
The cost of constructing the strapis high becauseit requires three options purchases:
Buy 2 ATM (at-the-money)call options
Buy 1 ATM (at-the-money) put option
All three options should be bought on the same underlying security, atthe samestrike priceand expiration date. The underlying can be any optionable security,i.e.a stock like IBM or anindex like .
A primary drawback with a strap is its upfront cost to implement. Not only must a trader purchase three options, but since they are all at the money their prices tend to be relatively high.
It is possible to modify a strap somewhat to use slightly cheaper options that are somewhat out of the money.This is called a strap strangle strategy. The profit curve would be similar to a regular strangle strategy as both require an even larger move in either direction to be profitable. As with the regular strap, the profit curve on the upside is steeper than it is on the downside.
Strap Usage
Stocks tend to be particularly volatile around news events and earnings releases. A trader who is bullish on a company in the long-term but worries that the current earnings report will be less than expected might use a strap as protection against a potential whipsaw.
The profit curve for a strap is similar to that of a straddle as both hold at the money puts and calls. However, because a strap holds two calls, the slope of the profit line above the current asset price is much steeper than the slope of the profit line when the underlying asset declines.
The tradehas unlimitedprofit potential abovethe upperbreakevenpoint because,theoretically at least,the price can rally to infinity. For eachpoint gained by the underlying security, the tradewill generatetwo profit points – i.e. a one-dollar increase in the underlyingincreasesthe payoff by two dollars.
This is where the bullish outlook for strap playsoffersbetter profit on upside compared to the downside and howthe strap differs from astraddle thatoffers equal profit potential on either side.
The tradehas limitedprofit potential below the lowerbreakevenpointbecause theunderlying cannot dropbelow $0. For eachpoint lost bythe underlying, the tradewill generateone profit point.
A strap is a narrow piece of leather, cloth, or other material. Straps are used to carry things, fasten things together, or to hold a piece of clothing in place.
1, the general principle underlying the STRAP process is to selectively dissolve a single polymer layer in a solvent system in which the targeted polymer layer is soluble, but the other polymer layers are not.
What Is Strap? A strap is an options strategy involving one put and two calls with the same strike and expiration. Traders use it when they believe a large move in the underlying asset is likely although the direction is still uncertain.
Brian pulled the straps through the buckles of his suitcase. She pulled the strap of her nightgown onto her shoulder. I undid my watch strap. We strapped the skis onto the roof of the car.
Straps are also used when doing repetition snatches and cleans or from the hang or the blocks. Straps can also be used for weight training exercises like lat pulldowns, chin-ups, and various dumbbell lifts.
Strapping, also known as bundling and banding, is the process of applying a strap to an item to combine, stabilize, hold, reinforce, or fasten it. The strap may also be referred to as strapping.
A Strategic Plan (STRAP) defines not only what a company does, but how it will grow and prosper. It outlines the tactics an organization will deploy to expand into new markets, new territories, new products as well as efforts to engage and retain existing client base.
The STRAP Strategy You can use the STRAP strategy to analyze your writing and reading assignments. The strategy consists of answering questions about these five features: subject, type, role, audience, and purpose.
A strip of material used to hold something in place is a strap, like your bathing suit's shoulder straps, the strap on your book bag, or the strap of your seatbelt.
A strap is an options trading strategy that involves buying two call options and one put option on the same underlying asset, with the same expiration date and strike price. This strategy is used when the trader believes that the underlying asset will experience a significant price movement in either direction.
The Structured Requirements Analysis Planning (STRAP) methodology was used to develop the Process Models and Data Models for this effort (See Figure 2-2). During the STRAP process the information requirements of a business (both process and data) are analyzed and documented.
In need of, as in We're strapped for cash this week . Originating in the mid-1800s as simply strapped , meaning “in need of money,” the term acquired for in the first half of the 1900s.
The Structural Alignment Program for Proteins (STRAP) is a java-based program that can be run over the web using a Java Web Start enabled browser or downloaded and run as a stand-alone application. Alignments can be done using one of several methods, including ClustalW, JAligner and T_coffee.
Lifting straps help you lift more weight, encourage muscle hypertrophy, develop a better mind-muscle connection, protect your hands, improve your symmetry, and are cleaner than chalk. However, it's easy to become over-reliant on straps and hinder your grip strength if you're not using them appropriately.
Bundling items together for handling and shipment: newspapers, pipe, lumber, concrete block, etc. Attaching items to pallets, skids, and crates. Attaching items to flatcars, flatbed semi-trailers, Securing a unit load of bricks, packaged glass, metal parts, etc.
There tend to be 3 main reasons we strap. 1. Immediately after an injury to protect it from further damage, 2. To provide slightly more support to a joint at the end stage of rehabilitation, and 3. to help protect a joint, usually a lax joint, from a new injury (prophylactic strapping).
Introduction: My name is Geoffrey Lueilwitz, I am a zealous, encouraging, sparkling, enchanting, graceful, faithful, nice person who loves writing and wants to share my knowledge and understanding with you.
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:max_bytes(150000):strip_icc()/StrapOptions_AMarketNeutralBullishStrategy4-5775e7cb64ec4bbc8f67d393972a40ac.png "Strap: What it Means, How it Works, Usage (1)")
