Strip
A strip is a position that is a Bearish strategy that profits from the passage of time and any decreases in implied volatility. The strip is an defined risk option strategy.
Directional Assumption: Bearish
Setup:
- 2*Buy ATM PUT
- 1*Buy ATM CALL
Ideal Implied Volatility Environment : High
Max Profit: Credit received from opening trade
How to Calculate Breakeven(s):
- Downside: Subtract initial credit from Put strike price
- Upside: Add initial credit to the Call strike price
Strap
A strap is a position that is a Bullish strategy that profits from the passage of time and any decreases in implied volatility. The strap is an defined risk option strategy.
Directional Assumption: Bullish
Setup:
- 2*Buy ATM Call
- 1*Buy ATM PUT
Ideal Implied Volatility Environment : High
Max Profit: Credit received from opening trade
How to Calculate Breakeven(s):
- Downside: Subtract initial credit from Put strike price
- Upside: Add initial credit to the Call strike price
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