Strap at a glance
| Construction | Buy 2 at the money calls and buy 1 at the money put, same strike and front month expiration, for a net debit. |
|---|---|
| Outlook | Big move either way |
| Volatility view | Wants rising IV |
| Max profit | Unlimited on the upside, where two calls gain without limit. |
| Max loss | Net debit × 100, the total premium paid for all three options. |
| Breakeven | Upper breakeven = strike plus half the net debit. |
| Experience level | Intermediate |
| Also called | Strap straddle, Bullish straddle |
How a strap works
A strap is a long straddle with an extra call. The straddle part makes money from a large move in either direction, and the second call tilts the position so that a rally pays roughly double what an equal decline pays. You pay three premiums, all at the money, so the debit is larger than a straddle and the stock must travel further on the downside to break even. The trade suits someone who expects volatility but believes the bigger move will be up.
At expiration, the payoff is a lopsided V with its low point at the strike, where all three options expire worthless and you lose the full debit. Above the strike, the two calls gain two dollars per share for every dollar the stock rises, so the right side of the V is twice as steep. Below the strike, only the single put gains, one dollar per dollar of decline, so the left side is shallower and its profit is capped when the stock reaches zero.
Before expiration, three long at the money options mean heavy time decay, so the position needs movement or rising implied volatility quickly. Gamma is strongest near the strike, which rewards a sudden move, and the net delta at entry is positive, roughly the delta of one extra call. Vega is large, so a jump in implied volatility ahead of an event can produce a profit before the stock moves, while a volatility crush after the event can create a loss even if the stock moves somewhat.
Strap example with real numbers
With the stock at $100, implied volatility at 30%, a 4.1% risk free rate and no dividend, you would buy 2 100 calls (32 days) at $3.73, buy 1 100 put (32 days) at $3.39. That is a net debit of $1,085. At expiration a maximum profit of unlimited and a maximum loss of $1,085, with breakevens at $89.15 and $105.42. The lognormal chance of profit is 38%.
These are theoretical American option prices from the Bjerksund and Stensland model, not live quotes. Load any ticker in the strap calculator above to run the same math on real market prices.
When to use a strap
- You expect a large move around an event such as earnings and think an upside surprise is more likely than a downside one.
- You want downside protection from the put while keeping extra leverage to a rally.
- Implied volatility is moderate or low relative to the move you anticipate.
- You prefer limited, known risk over the open ended exposure of selling options.
Max profit, max loss and breakeven
Maximum profit
Unlimited on the upside, where two calls gain without limit. On the downside, profit is strike minus net debit, times 100, if the stock falls to zero.
Maximum loss
Net debit × 100, the total premium paid for all three options. It occurs only if the stock closes exactly at the strike at expiration.
Breakeven
Upper breakeven = strike plus half the net debit. Lower breakeven = strike minus the full net debit. The upside breakeven is closer because two calls work to recover the cost.
Strap Greeks
- Delta: Positive at entry, roughly the delta of one at the money call, because two calls outweigh one put. It approaches two hundred shares long on a big rally and one hundred shares short on a deep decline.
- Gamma: Strongly positive near the strike, since all three options are at the money. Gamma is what turns a move into accelerating profit.
- Theta: Strongly negative. Three long at the money options decay together, and the decay speeds up in the final weeks.
- Vega: Strongly positive. The position gains when implied volatility rises and loses when it falls, often sharply after earnings.
See the live numbers for your position in the Greeks tab of the calculator, or explore a single option in the options Greeks calculator.
Early exercise and assignment risk
Since every leg is a long option, you never face assignment on a strap, but American exercise rights can still add value. If the stock rallies well above the strike before an ex dividend date, each call may hold less time value than the coming dividend, and exercising both the day before the ex date lets you collect the dividend on 200 shares. Usually, though, selling the calls captures their time value as well as their intrinsic value, so exercise only makes sense when that time value has shrunk below the dividend.
At expiration, any option in the money by a penny or more is exercised automatically unless you instruct your broker otherwise. A strap that finishes above the strike turns into 200 long shares, which requires the cash or margin to buy them, while one that finishes below the strike becomes 100 short shares. If the stock is hovering near the strike late on expiration day, decide whether to sell the calls or the put before the close, because an after hours move can turn an exercised position against you.
The calculator's Early exercise risk tab flags short legs that are likely to be assigned. For a single option, use the early exercise calculator or read how early exercise and assignment work.
Pros and cons
Pros
- Unlimited profit on a rally, with twice the upside leverage of a straddle.
- Still profits from a large decline thanks to the put.
- Maximum loss is limited to the debit and known in advance.
- No assignment risk because all legs are long.
Cons
- Expensive: three at the money premiums create a large debit and fast time decay.
- The downside breakeven is a full debit below the strike, so a moderate decline still loses money.
- Vulnerable to a volatility crush after the event it was bought for.
- If you are simply bullish, a single long call breaks even sooner on the upside.
How to manage a strap
- If a rally confirms your bias, sell the put for whatever value it has, or sell one call to lock in gains and keep a straddle running.
- Plan to exit before or soon after the catalyst so an implied volatility crush does not erase the gain.
- Avoid holding through the final week if the stock is stuck near the strike, where time decay is fastest.
- Use the calculator to compare a strap with a long straddle and a long call for your expected move.
Strap FAQ
What is the difference between a strap and a straddle?
A strap adds a second call to a long straddle, so it holds two calls and one put at the same strike instead of one of each. The extra call doubles the payoff on a rally and makes the trade lean bullish. It also raises the debit and pushes the downside breakeven further away.
Is a strap bullish or bearish?
A strap is bullish leaning: it profits from a large move in either direction but earns about twice as much per dollar on an upside move. Its starting delta is positive. The mirror image for a bearish lean is a strip, which uses two puts and one call.
What is the maximum loss on a strap?
The maximum loss on a strap is the net debit paid for the three options, times 100. It happens only if the stock settles exactly at the strike at expiration, where all three options expire worthless. Any move away from the strike recovers part of the debit.
When is the best time to buy a strap?
Traders typically buy a strap shortly before an expected catalyst, when implied volatility has not already priced in a large move and an upside surprise looks more likely. Timing matters because time decay and the volatility drop after the event both work against the position. Buying too early means paying for many days of decay.
Related strategies
Strip
A strip is a bearish leaning volatility strategy where you buy one at the money call and two at the money puts with the same strike and expiration.
Long Straddle
A long straddle is the purchase of a call and a put at the same strike and expiration, usually at the money.
Long Call
A long call is the purchase of a single call option, which gives you the right to buy 100 shares at the strike price on or before expiration.
Long Strangle
A long strangle is the purchase of an out of the money call and an out of the money put with the same expiration.
Educational tool, not financial advice. Calculations are theoretical and depend on your inputs; real fills, fees, early assignment and dividends can change results. Options involve risk and are not suitable for every investor.