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