InvestorQ : when to execute strap or strip please let me know best suitable timeframe to earn good profit or minimal loss?
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HANUMANT PRABHU MALI made post

when to execute strap or strip please let me know best suitable timeframe to earn good profit or minimal loss?

Answer
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1 year ago


I suppose you are referring to straps and strips as in options strategy. Based on that assumption, I am answering your question. Both strap and strip are market neutral strategies; meaning you can make money in the options market irrespective of whether the market goes up or down. There is a small difference between strap and strip.

The strap is a market-neutral bullish strategy in the options market
The strip is a market-neutral bearish strategy in the options market

Conceptually, both the strip and the strapwork just like a straddle. In a straddle, you buy a call and put option of the same strike so that once the combined option premiums are covered, you are profitable on both sides.

STRAP actually originated as a slightly modified version of a straddle. In a straddle, you are totally neutral whereas, in a strap, you are neutral with a bullish bias. You can use a strap when the Nifty has (for example corrected by 15%. You know that direction is uncertain but the probability of going up is more than the probability of going down. It generates double the profit potential on upward price movement compared to equivalent downward movement. This is what a STRAP in options entails.

Phase 1 of the STRAP: Buy 2 ATM (at-the-money) call options 
Phase 2 of the STRAP: Buy 1 ATM (at-the-money) put option

STRIP is also a slightly modified version of a straddle in terms of bias. In a strip, you are neutral with a bearish bias. You can use a strip when the Nifty has (for example) bounced by 15%. You know that direction is uncertain but the probability of going down is more than the probability of the Nifty rising. Strip generates double the profit potential on downward price movement compared to equivalent upward movement. Here is how a STRIP strategy is constructed.

Phase 1 of STRIP: Buy 2 ATM (at-the-money) put options 
Phase 2 of STRIP: Buy 1 ATM (at-the-money) call option