Investment Type: Debit
Strike Prices: ITM/ATM/OTM for both legs
Expiration Month: No Restrictions
Composition: Buy Call (more contracts) + Buy Put (less contracts)

 
  Long Strap Profile Chart  
 

 
Description:

 

Long Strap is a variation of Straddle with more contracts for Calls rather than Puts. Strap usually has 2:1 ratio and breakeven point for Call side is narrower. Strap is ideally used when we generally have a bullish bias on a stock, but we also assume that the stock could plunges hard in case it doesn’t go according to our plan, thus we still able to make profit.

 
  Example  
 

 

Entry:


Maximum Initial Investment = $5,000 (or based on 5% money management rule)

Stock Price :
$34.00
   
Buy/Sell :
Buy
    
Strike Price :
35 Call
 } Premium: $0.80
Expiration Date :
December
No of Contracts :
30
    

 

Stock Price :
$34.00
   
Buy/Sell :
Buy
    
Strike Price :
35 Put
 } Premium: $1.70
Expiration Date :
December
No of Contracts :
15
    

 

Investment @ Entry = (Premium of Call Leg x No of Contracts x 100 Shares) + (Premium of Put Leg x No of Contracts x 100 Shares) = $2,400 + $2,550 = $4,950

 

Breakeven Point Down = Strike Price – Net Debit = $35.00 - $3.30 = $31.70
Breakeven Point Up = Strike Price + Net Debit/2 = $35.00 + $3.30/2 = $36.65

 

Exit:

Best Case Scenario:

Stock Price :
$40.00 up $6.00
    
Buy/Sell :
Buy
    
Strike Price :
35 Call
 } Premium: $5.00
Expiration Date :
December

 

Stock Price :
$40.00 up $6.00
    
Buy/Sell :
Buy
    
Strike Price :
35 Put
 } Premium: $0.00
Expiration Date :
December

 

OR

 

Stock Price :
$27.50 down $6.50
    
Buy/Sell :
Buy
    
Strike Price :
35 Call
 } Premium: $0.00
Expiration Date :
December

 

Stock Price :
$27.50 down $6.50
    
Buy/Sell :
Buy
    
Strike Price :
35 Put
 } Premium: $7.50
Expiration Date :
December

 

Profit @ Exit = (Premium of Call Leg x No of Contracts x 100 Shares) + (Premium of Put Leg x No of

Contracts x 100 Shares) – Investment @ Entry = $15,000 + $0 - $4,950 = $10,000

 

Return of Investment = Profit @ Exit / Investment @ Entry = 203%

 

OR

 

Profit @ Exit = (Premium of Call Leg x No of Contracts x 100 Shares) + (Premium of Put Leg x No of Contracts x 100 Shares) – Investment @ Entry = $0 + $11,250 - $4,950 = $10,000

 

Return of Investment = Profit @ Exit / Investment @ Entry = 127%

 

Worst Case Scenario : Investment @ Entry

 

Stock Price
Profit/Loss
ROI
27.50
6300
127%
30.00
2550
52%
32.50
-1200
-24%
35.00
-4950
-100%
37.50
2550
52%
40.00
10050
203%