Strap

Strap Strategy

The Strap is an options strategy designed for traders who expect significant price movement, especially to the upside. It allows for high profits if the asset price rises sharply, while still offering reasonable gains if the price falls.

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What is the Strap?

The Strap is similar to a Straddle in its focus on rising volatility. However, unlike a Straddle, which treats upward and downward price moves equally, the Strap is slightly more bullish.

The strategy typically involves:

• Two Call Options (ATM)

• One Put Option (ATM)

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

You can think of the Strap as a bullish Straddle:

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

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Characteristics of the Strap

• Cost: Limited to the total premium paid.

• Profit Potential: Unlimited to the upside, significant to the downside.

• Risk: The maximum loss is the cost of premiums if the price stays close to the strike price.

Buying one Strap is equivalent to holding three ATM options simultaneously:

• 2× Call Options (ATM)

• 1× Put Option (ATM)

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Example with ETH

Let’s assume the market price of ETH is $4,200.

A Strap at this level would involve:

• Two call options with a strike price of $4,200.

• One put option with a strike price of $4,200.

• All options expiring on the same date.

Scenario 1: Price rises sharply

If ETH jumps to $5,000 before expiry:

• The calls are deep in-the-money, generating significant profit.

• The put option expires worthless.

• Net result: strong upside profit after subtracting premiums.

Scenario 2: Price falls

If ETH drops to $3,500 before expiry:

• The put option gains value.

• The calls lose value.

• Net result: moderate profit after subtracting premiums.

Scenario 3: Price remains near $4,200

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

• All options expire with little to no value.

• Net result: maximum loss limited to the initial premiums paid.

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Why Use the Strap on Nexo Options?

• Bullish Tilt: Favours upward moves, ideal if you expect rallies but want protection in case of a drop.

• Volatility Play: Profits from large swings in either direction.

• Limited Risk: You cannot lose more than the premiums paid.

• Flexibility: Can be used for both speculation and portfolio hedging.

The Strap offers traders a versatile way to benefit from market uncertainty while leaning toward bullish outcomes.