Strap Strategy

1. Definition

A Strap is a modified Long Straddle strategy with a bullish bias. It is used when an investor expects a significant move in the underlying asset's price but believes an increase is more likely than a decrease.

2. Market View

• High Volatility + Bullish Bias: The trader is betting aggressively on a rally (holding more Calls) but keeps a Put option as insurance against a market crash.

3. Setup

It involves buying ATM options with a 2:1 ratio. * Action: Buy 2 ATM Calls + Buy 1 ATM Put. * Cost: High Net Debit.

4. Profit & Loss

4.1. Upside (Primary Goal)

Since the trader holds 2 Calls, the strategy generates significant profits quickly as the stock price rises.

4.2. Downside (Hedge)

If the market crashes instead, the single Put option provides unlimited profit potential, though the move must be large enough to cover the cost of the two worthless Calls.

4.3. Max Loss

Occurs if the stock price closes exactly at the strike price. The maximum loss is the total premiums paid for the three contracts.