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Derivatives




Strap


It is a combination of options whereby two calls and one put are bought on the same stock. The calls and the put have the same exercise price and expiration date. The strap is bullish on the profit/ risk potential. Like straddle, straps attempt to capitalize on wide movements in the price of an underlying stock.

However, traders and investors following this strategy expect that the likelihood of an increase in stock price would exceed that of a decrease. Therefore, they buy two calls to double their potential gains from such a “more likely” increase. A strap is a variant of straddle, in which a call option is added to a straddle.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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