This means that you should use it if your expectation is that the underlying security will make a significant price movement in either direction, with an upward price movement being the most likely direction.
It can return a profit from either direction, but the profits will be greater if the underlying security does indeed go up substantially.
Just like the long straddle, the strap straddle also requires you to buy at the money calls and at the money puts, with the strap options expiration date. However, you need to buy more calls than puts.
You'll need to decide what ratio of calls to puts you use; we would advise a 2 to 1 ratio when you start using this strategy and then making any adjustments strap options on the circumstances and your outlook. Example of the Strap Straddle We have provided strap options example of using the strap straddle below, including what the results would be based on different price movements in the underlying security.
Rather than using exact market data, we have used hypothetical options prices, to keep things simple.
For the same reason, we haven't included commission charges. You also think that an upward movement is most likely.
This is Leg A. This is Leg B.
You will have broken even, as the value of the calls is equal to the initial investment. It's suitable strategy for beginners, because there are only two transactions and no margin requirements.