A relatively simple trading strategy that involves buying a set of
options, two
calls and one
put, with the same
strike price and
expiration date on a
stock. The strap is a more focused version of the
straddle, and is popular due to its unlimited
profit, limited
risk nature. The maximum loss that a strap can incur occurs when the
equity price on the
expiration date of the
options is the same as the price on the date the options were purchased. In this case, the loss is equal to the sum the three-option set was purchased for. However, with any deviation in the price either up or down, the strategy recovers at least some of the cost of purchasing the options. See:
Strip,
Straddle