In options realm, a strip is a combination of options whereby two puts and one call are bought on the same underlying (e.g., stock). The puts and the call have the same exercise price and expiration date. The strip is bearish on the profit/ risk potential. Strips endeavor 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 be less than the likelihood of a decrease. Therefore, they buy two puts to double their potential gains from such a “more likely” decrease. A strip is a variant of straddle, in which a put option is added to a straddle.
In the world of futures, a strip is a futures trading strategy which involves buying four or more consecutive quarterly delivery month futures. There is no need for the individual legs to be for the same trading volume. However, the delivery months must be uninterruptedly consecutive.
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