Long-Strap and Long-Strip
| Range | Value |
|---|---|
Market expectation | Rising volatility |
Construction | x Calls Long |
Construction | x Puts long |
Profit potential | Unlimited |
Risk of loss | Limited |
Time effect | Negative |
Volatility effect | Positive |
Market expectation
If you expect an increase in price volatility but are not indifferent to the direction of the changes, long strips and straps are suitable constructions. If you anticipate firmer prices, the long strap is preferable, and the long strip if prices are weaker.
Construction
Starting from a long straddle, additional calls are bought for a strap, while additional puts are bought for a strip. Depending on expectations, more options are purchased accordingly.
You can select default settings after selecting a strip or strap in the "Option strategy optimization" dialog box: 1:2, 2:3, 2:5, 1:3. Only these constellations are then displayed in the evaluation table.
Profit potential
The profit potential is unlimited on both wings. Long straps increase in value more quickly when prices rise, long strips when prices fall.
The two break-evens are not symmetrical here; the break-even is closer to the strike price in the expected direction.
Risk of loss
The risk of loss of the positions is limited. The maximum loss occurs if the price of the underlying remains at the level of the strike price. The maximum loss is then equal to the premium paid.
Time effect
Analog long straddle creates a negative time effect. The additional purchase of options increases this effect.
Volatility effect
Volatility effects are consistently positive for long straps and long strips, as the positions only consist of purchased options. With increasing volatility, both the value of the options and the chances of greater price increases rise.