Strip

Strip Strategy

The Strip is a bearish volatility strategy that allows traders to profit from large market moves, with a stronger bias toward downward price action.

It is designed to deliver high profits if the price falls sharply while still offering reasonable profits if the price rises.

---

What is the Strip?

The Strip is similar to the Straddle and Strap, as it also bets on increased volatility. However, unlike the Strap (which is bullish), the Strip is slightly bearish.

The strategy typically consists of:

• 1 Call Option (ATM)

• 2 Put Options (ATM)

All three options share the same strike price and expiration date.

You can think of the Strip as a bearish Straddle:

“I don’t care which way the price moves, as long as it moves a lot. But I profit even more if the move is downward.”

---

Characteristics of the Strip

• Cost: Limited to the combined premium of the options purchased.

• Profit Potential:

  • Unlimited if the asset falls sharply.

  • Significant (but smaller) if the asset rises.

• Risk: Maximum loss is limited to the total premium if the price stays near the strike.

Buying one Strip is equal to holding three ATM options at the same time: one call and two puts.

---

Example with ETH

Suppose ETH is trading at $4,200.

A Strip at this level would involve:

• Buy 1 Call Option with strike = $4,200.

• Buy 2 Put Options with strike = $4,200.

• Same expiration date for all three options.

Scenario 1: ETH drops sharply to $3,200

• The two puts generate large profits.

• The call expires worthless.

• Net result: High profit, far exceeding the premium paid.

Scenario 2: ETH rises to $5,000

• The call option gains significant value.

• The two puts expire worthless.

• Net result: Reasonable profit, though smaller than in the downside case.

Scenario 3: ETH stays at $4,200

• Neither calls nor puts move significantly in-the-money.

• Net result: Loss limited to the initial premium.

---

Why Use the Strip on Nexo Options?

• Bearish Tilt: Best suited when expecting volatility with a bias toward downside risk.

• Volatility Play: Gains from sharp moves in either direction.

• Defined Risk: Maximum loss capped at the initial premium.

• Portfolio Protection: Can serve as a hedge against potential price collapses while still offering upside exposure.

The Strip is a versatile strategy for traders who want to take advantage of volatility while leaning bearish, making it useful in uncertain or downward-trending markets.