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Strip
eitherwaysThe Strip is high volatility strategy with more bias towards downside
Example:
| Instrument | Qty | Price |
|---|---|---|
| BUY NIFTY 21-Jul-26 24100 CE | 65 | 119.15 |
| BUY NIFTY 21-Jul-26 24100 PE | 130 | 135.9 |
When To Execute?
Strip is neutral to bearish Strategy; Ideal for traders who are anticipating an increase in volatility with the stock price moving explosively in either direction, preferably on the downside
Trade
Buy 1 lot ATM Call and 2 lots ATM Puts with same expiration . Strategy is expensive as compared to Straddle and it requires explosive move mostly on downside
Advantages
With Neutral to Bearish outlook, one can participate in either ways surge in volatility preferably volatility on downside
Ideal to trade when implied volatility is at lower end. Beneficial when option prices are lower and expected to increase exponentially with bias on downside
Disadvantages
Time decay is harmful to Strip. Time decay accelerates exponentially in last week of expiry
As cost to establish Strip is significantly high. If stock fails to give desired move, one can lose the premium
Maximum Profit
Maximum Profit is unlimited. However profit is more skewed on downside as we bought double the number of puts. Profitability improves at double the speed on downside. The BEP on the upside is the strike plus the net debit, which is more than the Straddle because we have bought double the amount of puts
Maximum Loss
It is Net debit Strategy as you have bought both Call & Put. Strip is more expensive than usual Straddle because of the extra Put within the strategy