Strap – The Option Strategy Desk Reference

Strap

Strategy: Buy 2n ATM Calls, Expire 90 DTE

Buy n ATM Puts, Same Expiry

Example:

Price Chart: A series of strong directional price moves on an upward trending security

Current IV%: 25% (to reduce premium values)

IV Rank: 10 to 25

Trade: Buy 2n ATM call options; buy n ATM put options. (All options expire 90 DTE.)

Strike Deltas: (both strikes ATM)

Long ATM Calls 0.50

Long ATM Puts 0.50

Goals: A strong directional price move benefits one of the ATM long options as it moves deeper ITM. The strap option strategy favors a rally rather than a drop because of the 2:1 call-to-put ratio. The opposite long option is sold as soon as the trader is confident of a sustained directional price move.

Manage: Watch for a strong directional price move. Respond by selling the losing long options to recover as much premium as possible. Retain the profitable long options as they move deeper ITM. Once a satisfactory profit is achieved, sell the remaining long options. If ample time remains, consider using the long options to cover a bull call or a bear put vertical to collect additional premium.

Profit: Close when the remaining option achieves a profit of 30 percent or more.

Loss: Close if the directional move changes and begins to reduce the value of the remaining options.