Investors must use Strap strategy when they are bullish on volatility and bullish on market direction going upwards.
This strategy involves buying two lots of “At-the-Money Call Option” and buying an “At-the-Money Put Option”. Both options must have the same underlying security and expiration month.
Strap is similar to bullish version of the common Long Straddle.
Large profit is attainable with the Strap strategy when the underlying makes a strong move either upwards or downwards at expiration, with greater gains to be made with an upward move.
Investor view: Bullish on direction as well volatility of the Stock/ Index.
Risk: Limited to net premium paid.
Upper breakeven: Strike price + (net premium paid/2).
Lower breakeven: Strike Price – net premium paid.