Strap
Buy 2 calls and 1 put at the same strike. A volatility play with a bullish bias — you profit more if the stock rallies than if it drops.
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What is a Strap?
A strap is a modified straddle with a bullish twist. Instead of buying one call and one put at the same strike (a straddle), you buy two calls and one put. Same strike, same expiration. The extra call gives you double the exposure on the upside.
Why would you do this? You expect a big move in either direction, but you think an upside move is more likely. If the stock rallies, you make money twice as fast as a straddle because you have two calls working. If the stock drops, you still profit from the put — just at the normal rate.
It is like a straddle that has been tilted bullish. You want volatility, but you want the odds slightly in favor of the upside.
How to Set It Up
- Buy 2 calls at the ATM strike
- Buy 1 put at the same ATM strike
- Same expiration for all three
- Strike selection: At the money. You want the most sensitivity to movement in both directions.
- Expiration: 30-60 days, or timed to a catalyst.
- Net cost: Expensive. You are buying three options. The total cost is higher than a straddle (which buys two options) and much higher than a strangle.
The position has a net positive delta because of the extra call. It is not delta-neutral like a straddle.
When to Use This Strategy
Use a strap when:
- You expect a big move and think upside is more likely
- There is a catalyst coming that could send the stock sharply higher (but a drop is also possible)
- You want straddle-like protection on the downside with extra upside firepower
- You do not want to pick a direction outright but lean bullish
- Implied volatility is low (making the options cheaper to buy)
Straps are uncommon in practice because the extra call costs money without adding downside protection. Most traders who lean bullish just buy more calls or use a call-heavy ratio. But the strap is clean and simple — easy to understand and manage.
Example Trade
Stock XYZ is trading at $100. Earnings next week — you think a rally is more likely, but a drop is possible.
- Buy 2 XYZ $100 calls for $4.00 each ($8.00 total)
- Buy 1 XYZ $100 put for $3.80
- Total cost: $8.00 + $3.80 = $11.80 ($1,180 total)
If XYZ rallies to $115: The two calls are worth $15 each ($30 total). The put is worthless. Profit: $3,000 - $1,180 = $1,820. The double calls crush it.
If XYZ drops to $85: The put is worth $15 ($1,500). The calls are worthless. Profit: $1,500 - $1,180 = $320. Still profitable, but much less than the upside scenario.
If XYZ stays at $100: All three options expire worthless. Loss: $1,180. The full premium is gone.
If XYZ moves to $106: Two calls worth $6 each ($12 total = $1,200). Put worthless. Profit: $1,200 - $1,180 = $20. Barely breakeven on the upside.
Risk and Reward
- Max profit: Unlimited on the upside (2x leverage from the two calls). On the downside, max profit is (strike - 0) x 100 - premium = $10,000 - $1,180 = $8,820 if the stock goes to zero. Still large, but one-directional.
- Max loss: Total premium paid. $1,180. Occurs when the stock stays at the strike price.
- Breakeven: Two breakeven points. Upside: strike + total premium / 2 = $100 + $5.90 = $105.90 (because two calls share the cost). Downside: strike - total premium = $100 - $11.80 = $88.20 (the full cost falls on the single put).
Notice the asymmetry in breakevens. On the upside, the stock only needs to move $5.90 to break even. On the downside, it needs to move $11.80. That reflects the bullish bias.
Tips and Common Mistakes
- The cost is high. Three options at the money is expensive. Make sure the expected move justifies the premium.
- Implied volatility matters. If IV is high, the options are expensive and the breakevens are wide. Buy straps when IV is relatively low.
- Compare to just buying calls. If you are bullish, buying two calls outright is cheaper (no put) and has wider profitability. The strap only makes sense if you genuinely think a drop is possible too.
- Time decay hurts. Three long options means triple the theta burn. Do not hold too long without a move.
- Close winners early. If the stock moves big in either direction, take profits. Do not wait for expiration.
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