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

 
  Long Strip Profile Chart  
 

 
Description:

 

Long Strip is a variation of Straddle with more contracts for Puts rather than Calls. Strip usually has 2:1 ratio and breakeven point for Put side is narrower. Strip is ideally used when we generally have a bearish bias on a stock, but we also assume that the stock could rallies sharp in case it doesn’t go according to our plan, and 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 :
10
    

 

Stock Price :
$34.00
   
Buy/Sell :
Buy
    
Strike Price :
35 Put
 } Premium: $1.70
Expiration Date :
December
No of Contracts :
20
    

 

Investment @ Entry = (Premium of Call Leg x No of Contracts x 100 Shares) + (Premium of Put Leg x No of Contracts x 100 Shares) = $800 + $3,400 = $4,200

 

Breakeven Point Down = Strike Price – Net Debit = $35.00 - $4.20/2 = $32.90
Breakeven Point Up = Strike Price + Net Debit/2 = $35.00 + $4.20 = $39.20

 

Exit:

 

Best Case Scenario:

Stock Price :
$42.50 up $8.50
    
Buy/Sell :
Buy
    
Strike Price :
35 Call
 } Premium: $7.50
Expiration Date :
December

 

Stock Price :
$42.50 up $8.50
    
Buy/Sell :
Buy
    
Strike Price :
35 Put
 } Premium: $0.00
Expiration Date :
December

 

OR

 

Stock Price :
$30.00 down $4.00
    
Buy/Sell :
Buy
    
Strike Price :
35 Call
 } Premium: $0.00
Expiration Date :
December

 

Stock Price :
$30.00 down $4.00
    
Buy/Sell :
Buy
    
Strike Price :
35 Put
 } Premium: $5.00
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 = $7,500 + $0 - $4,200 = $3,300
Return of Investment = Profit @ Exit / Investment @ Entry = 79%

 

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 + $10,000 - $4,200 = $5,800
Return of Investment = Profit @ Exit / Investment @ Entry = 138%

 

 

Worst Case Scenario : Investment @ Entry

 

Stock Price
Profit/Loss
ROI

30.00

5800

138%

32.50

800

19%

35.00

-4200

-100%

37.50

-1700

-40%

40.00

800

19%

42.50

3300

79%