Strip
Buy 1 call and 2 puts at the same strike. A volatility play with a bearish bias — you profit more if the stock drops than if it rallies.
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What is a Strip?
A strip is a modified straddle with a bearish twist. You buy one call and two puts at the same strike and expiration. The extra put gives you double exposure on the downside. If the stock drops, you make money twice as fast as a straddle. If the stock rallies, you still profit from the call — just at the regular rate.
It is the mirror image of a strap. Where a strap tilts bullish with an extra call, the strip tilts bearish with an extra put. You are saying: "I expect a big move, and I think a drop is more likely. But I want upside protection too, just in case."
How to Set It Up
- Buy 1 call at the ATM strike
- Buy 2 puts at the same ATM strike
- Same expiration for all three
- Strike selection: At the money for maximum sensitivity.
- Expiration: 30-60 days, or timed to a catalyst.
- Net cost: Expensive. Three options at the money add up.
The position has a net negative delta because of the extra put. It leans bearish from the start.
When to Use This Strategy
Use a strip when:
- You expect a big move and think the downside is more likely
- Bad news could be coming (earnings miss, regulatory risk, lawsuit)
- You want more than straddle exposure on the downside
- You do not want to go fully directional with just puts
- Implied volatility is relatively low
Strips are rare in practice. Most traders with a bearish lean just buy puts outright. But if you genuinely think either direction is possible and want to weight the downside, the strip is a clean structure.
Example Trade
Stock XYZ is trading at $100. Earnings next week — you think a miss is likely, but a beat is possible.
- Buy 1 XYZ $100 call for $4.00
- Buy 2 XYZ $100 puts for $3.80 each ($7.60 total)
- Total cost: $4.00 + $7.60 = $11.60 ($1,160 total)
If XYZ drops to $85: The two puts are worth $15 each ($30 total = $3,000). The call is worthless. Profit: $3,000 - $1,160 = $1,840. The double puts deliver big.
If XYZ rallies to $115: The call is worth $15 ($1,500). The puts are worthless. Profit: $1,500 - $1,160 = $340. Still a winner, but much less than the downside.
If XYZ stays at $100: All three options expire worthless. Loss: $1,160. Full premium gone.
If XYZ drops to $94: Two puts worth $6 each ($12 total = $1,200). Call worthless. Profit: $1,200 - $1,160 = $40. Barely breakeven on the downside.
Risk and Reward
- Max profit: On the downside, (strike x 200) - total premium if the stock goes to zero. In our example: $20,000 - $1,160 = $18,840. On the upside, unlimited but at the regular 1x rate.
- Max loss: Total premium paid. $1,160. Occurs when the stock stays at the strike.
- Breakeven: Two breakeven points. Downside: strike - total premium / 2 = $100 - $5.80 = $94.20 (two puts share the cost). Upside: strike + total premium = $100 + $11.60 = $111.60 (the full cost falls on the single call).
The breakeven asymmetry is the opposite of a strap. The downside breakeven is closer ($5.80 move), and the upside breakeven is farther ($11.60 move). That is the bearish bias in action.
Tips and Common Mistakes
- Cost is substantial. Three ATM options is a lot of premium. The move needs to be big enough to justify it.
- If you are just bearish, buy puts. The strip only makes sense if you genuinely want upside protection too.
- Time decay is your enemy. Three long options means heavy theta. Do not let the position sit idle.
- Compare to a straddle. A straddle costs less and is balanced. Only use a strip if you have a strong bearish lean.
- Take profits on big moves. If the stock gaps down hard, close the position. Do not hold hoping for more.
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