≑ Menu

Strip Option Trading Strategy

If your view is bearish, you can trade Strip. This strategy is opposite to Strap. The Strip is a modified version of long Straddle.

In a Long Straddle a trader buys ATM calls and puts in the same quantity. However in Strip since his view is bearish, he will buy 2 ATM puts and 1 ATM call.

Here is the construction of the Strip Strategy:

1. Buy 1 Call
2. Buy 2 Puts

These options should be of the same stock/index, strike and expiry.

If the trader is lucky and the down-move actually happens – he will make more than had he implemented just the straddle strategy. Lets look at the following graph:

strip options trading profit and loss graph

See that profits from 2 puts are more than 1 call.

Risk is Limited to the price paid to buy the options.
Reward is Unlimited till the expiry of the option.

Please note that the trader can still make money even if he was wrong – but the stock has to move in the opposite direction really fast. The 1 call bought has to beat the cost of buying all the options and still bring in some profits.

When to Trade a Strip?

Suppose a bad news has come and you want to take your chances – you can trade a Strip. Note that technically it is NOT required that you buy only ATM options. You can buy options from any strike but both calls and puts should be of same strike.

One can always ask – why not buy cheaper options of both the call side and the put side. Well yes you will save money but the risk will also increase.

When a news comes in, index and stocks move very fast in either direction. Bad news – means going south, and good means going north.

If the options are far out of the money they will not appreciate in value fast. Chances are even if a movement comes you may not make sufficient money to make the trade profitable. There are two reasons for this:

1. Delta of far OTM options are very small. A 1 point movement in stock will not have much effect on the option premium.

2. Theta will also eat premium everyday. If the expiry is near and the option is still far, it will actually decrease in value even if the stock moving in its direction.

3. After the news volatility crunches. The option premium will reduce anyway. A buyer has to fight this as well.

I hope it is now clear why buying far OTM options is a dangerous game.

How to Trade Strip in the best possible way?

1. Traders don’t try this – but Strip will work better on a stock not on a Index. Because in a stock a movement of 2% is quite easy after a news. However volatility will still be a problem with buyers.

2. Wait for the news to come out. Volatility will crush – you will get options at a cheaper price. But it may crush further. (And this is a big problem. However trading after news is better.)

3. Analyze the news. How bad or good is that.

4. If the news is good trade a Strap. If the news is bad trade Strip.

5. If confused but still bearish, buy just OTM strike 2 puts and obviously that strike is just ITM for the call. You created a Strip highly favoring the bearish markets.

Three things can happen:

1. Stock moves down: Great result. The puts you bought were not very far off from the ATM strike and cheap too. In terms of percentage they will increase very fast. The call will decrease in value – but it will become first ATM and then go OTM. A 100 point movement can bring in good profits. Because when you book profits and sell the call you will still get a good premium. You are already making good profits from the puts. Result: Not a big loss from the call, and great profits from the puts.

2. Stock stays in range: Bad result. If the options you bought were cheap you can hold onto expiration, else you should sell after seeing no movement for the next 3 days. Usually whatever movement has to come it comes in 3 days after the news. Then the news dies down and normal trading begins. Which means there is no point in waiting after 3 trading days. Sell all options bought and book loss/profits.

3. Stock moves up: Good result. The call option was already ITM so, it will have a good delta and will move faster. The two put options bought will lose value fast, but this call option will be bringing in profits. Though since its only 1 lot, you may have to wait for sometime to book profits. Not sure here because a lot of Greeks decide the option price but if the stock moves up 2% up in 2 days – the profit from the call bought should surpass the losses from the puts to a good extend. Remember that volatility has decreased, so 1% movement may not be enough.

Strip and Strap are rarely traded by trades worldwide. The reason being they are skewed towards a direction. Most trades are fed up with directional calls so much so that they start adopting the non-directional strategies. Therefore they buy Straddles.

However with most buyers losing money, after a while they stop trading altogether.

Have you tried the Strip? If yes please share your experiences.

Please like & share my blog with your friends:

Hi, I am Dilip Shaw, owner of this website. I am a trader like you. I have been trading since 2007, but lost a lot of money till 2010. I then stopped trading and studied options like college exams. Started trading again from 2011 and never looked back since. I did a lot of research, read books and did countless paper-trading before being profitable. You can read about me here.

My conservative trading course since 2014 is helping many retail traders just like you who have a job or business make consistent profits like this:

What Traders Say About This Course
Testimonials Year 2015
Testimonials Year 2015 Page 2
Testimonials Year 2015 & 2016
Testimonials Year 2016
Testimonials Year 2017
Testimonials Year 2018
Testimonials Year 2019
Testimonials Year 2020 to 2023
What People Say Just After Reading My Course
Emotional Testimonial by a Young Woman Trader and Her Mother
One Of My Client Is Making Rs.25k Per Week
Difference Between Other Courses And Mine
What Others Charge for Courses

You can do this course from your home. Some traders make amazing profits like Rs. 16.26 lakhs profit in 5 days though results may differ for all.

This course helps you learn to trade conservative option strategies for monthly income. Once you finish the course you can start trading immediately. You can start trading from any day. No need to wait for expiry. You will make profits consistently.

This course is good if you have a regular job or business. You DO NOT NEED to monitor your trades every second.

What You Get?

Before reading please understand that for all 5 strategies, strike selection will be taught. Strike selection while trading Options is the most essential part to succeed.

You get two conservative non-directional strategies on options, one conservative stock option strategy and two conservative directional strategies on Future & Option combination.

Non directional trades are profitable 80% of the times and make 3-5% per trade (Results may vary).

Directional strategy makes money fast. It does not matter which side the stock moves. In fact you make more when you are wrong in the Future trade. πŸ™‚ Some amazing profits possible here.

The stock option trade makes 30,000 in one trade and if SL is hit there is a way to recover losses plus make 30k in that trade.

Technical knowledge is NOT required. No need to monitor trades every second.

In the course you will learn how to select the strike prices. You learn when to trade, which strikes to sell which to buy, how much profit target you should be looking for, the best place to take stop loss and what to do after taking stop loss – means how to get that money back. The success rate is more than 80%.

Since trades are properly hedged there is no stress in trading my strategies.

I am very confident that you will make money trading my strategies. To help you succeed I offer few months support for FREE.

11 Reasons Why You Should Do The Course:
1. TA Knowledge NOT required
2. NO Software Required
3. Regular Monitoring NOT Required
4. Continue with Your Job
5. Do Course From Your Home
6. 100% Hedged
7. Stress-Free Trading
8. Not too much money needed to trade
9. Scaling Possible
10. One Time Fee
11. FREE Support For Months
To know more Call/SMS/WhatsApp me on 9051143004 or email me now. I know English and Hindi.

Read the details of the course here.

If you want to enroll for the course you can do so here.

P.S: So many years of trading has thought me one thing - it is always better to make small profits month after month, rather than lose money month after month trying to make too much money. It never happens. But small money accumulated month after month can become very big in only a few years.

Privacy Policy | Disclaimer

WhatsApp or Call me: 9051143004

If you have any question you can contact me.

You can read about me here and my trading mistakes here.

TheOptionCourse.com Copyright @ All Rights Reserved
Dilip Shaw, Founder

Copyright Infringement: Any act of copying, reproducing or distributing any content in the site or newsletters, whether wholly or in part, for any purpose without my permission is strictly prohibited and shall be deemed to be copyright infringement.

INCOME DISCLAIMER: Any references in this site of income made by the traders are given to me by them either through Email or WhatsApp as a Thank You message. However every trade depends on the trader and his level of risk taking capability, knowledge and experience. Moreover stock market investments and trading are subject to market risks. Therefore there is no guarantee that everyone will achieve the same or similar results. My aim is to make you a better & disciplined trader with the stock trading and investing education and strategies you get from this website.

DISCLAIMER: I am NOT an Investment Adviser (IA). I am an Authorized Person (AP) of a Stock Broker. In other words I am a sub-broker. I DO NOT give tips or advisory services by SMS, Email, or WhatsApp or any other forms of social media. I strictly adhere to laws of my country. I only offer education for free on finance, risk management & investments in stock markets through the articles in this website. You must consult an authorized Investment Adviser (IA) or do thorough research before investing in any stock or derivative using any strategy given in this website. I am not responsible for any investment decision you take after reading any article in this website. Click here to read the disclaimer in full.

Long Call Ladder Strategy
Strap Options Strategy Explained

About the author: I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

{ 6 comments… add one }
  • Dhadiga November 20, 2014, 1:54 pm

    Dear Sir,
    I always wait for your post, thinking to learn something, but today some how I missed few things here-
    what you mean by If the trader is lucky? are we betting here?
    sorry but what the whole point of the article and what you wanted to convey to us?

    Kindly Enlighten

    • Dilip Shaw November 20, 2014, 3:09 pm

      Good question but the answer is simple. Stock trades are a bet. For example if you buy a Stock lets say Axis Bank at 470 – you are essentially betting that it will move up sometime later. If it moves up you were lucky (luck in that sense). If it doesn’t your were unlucky – then you got to decide whether you want to keep this stock until it goes up again – or sell it at a loss.

      Stock trades that are not bet are the ones gifted to a trader – like employee stock options or gift from someone. Once you receive and decide to hold – it is again a bet that the stock will move up further. πŸ™‚

      “Bet” not necessarily means buying a lottery. But a “Bet” can also be a “View” – So just replace bet with view and it means the same:

      If the trader’s view is correct and the down-move actually happens – he will make more than had he implemented just the straddle strategy.

      Hope that clears the confusion.

  • dhadiga November 20, 2014, 5:56 pm

    Sir don’t you you are contradicting your own statement made on November 8, 2014, 5:38 pm on http://www.theoptioncourse.com/can-make-enough-money-trading-live-comfortable-life/ ?

    anyway the 2nd question is still open
    “sorry but what the whole point of the article and what you wanted to convey to us?”

    • Dilip Shaw November 21, 2014, 11:29 am

      I do not know what I contradicted. Being lucky not necessarily mean gambling. Risking more than you can afford is gambling. But taking a conservative approach is not.

      The point of the article is to help traders who trade Strip. If you do not trade Strip, you may ignore or read to know about the Strip trade. Who knows you may get an opportunity to trade Strip in future. This article will give you some info on how to trade Strip well. That is it.

  • Dhadiga November 21, 2014, 4:08 pm

    Sir thanks for the reply…
    Sir as you studied more on volatility (VIX) and use it for your trades I have a question… today there was a drop in VIX and rise in PRICE, how you read it and what it suggests?

    • Dilip Shaw November 21, 2014, 4:40 pm

      Dhadiga, I am not a technical analysis guy but usually VIX is inversely proportional to Price.

      See the graphs here:
      India VIX: http://www.moneycontrol.com/indian-indices/india-vix-36.html
      Nifty: http://www.moneycontrol.com/nifty/nse/nifty-live

      You can see that when VIX rises Nifty falls, and when VIX falls Nifty rises.

      When there is fear or panic in the stock markets the VIX or the fear factor increases, and Nifty falls because people start taking their money out. Similarly when everything looks good people get confidence and start buying stocks and VIX drops.

      Remember that these are historically low Volatility period. Not good for both option sellers and buyers. But I am sure Volatility will go back to its mean 15-17 levels. Yep, if that happens Nifty will fall. Just wait for one bad news πŸ™‚

Leave a Comment

Social Share Buttons and Icons powered by Ultimatelysocial