Strap Strategy

A strap profits from either direction, just more from upside. If you buy only calls and the stock falls, you lose everything. With a strap, a big downward move still profits (from the put). It's for when you expect volatility but have a bullish lean.

A strap costs the premium of 2 calls + 1 put. For ATM options, this might be roughly 3-4% of the stock price total. For DBS at S$33 with 30-day options, expect to pay around S$1.50-2.00 (S$1,500-2,000 per set).

If the stock stays at the strike price, all 3 options expire worthless and you lose the entire premium. This is why straps need a catalyst - you need the stock to move to profit. Time decay is your enemy.

Yes! If the stock falls below the lower breakeven (strike - total premium), you profit from the put. It's just that you profit less than you would from an equal upside move. A S$3 fall gives S$3 profit; a S$3 rise gives S$6 profit.

A straddle is 1 call + 1 put (neutral bias). A strap is 2 calls + 1 put (bullish bias). Both profit from big moves, but the strap profits twice as much on upside moves. Choose strap when you think up is more likely.

If you're very confident the stock will rise, long calls are cheaper. If you think it will rise but want protection if wrong, use a strap. The put in a strap protects you if the stock falls instead of rising.

Close immediately - within the first hour of trading after the announcement. IV typically crushes 30-50% after earnings. Even if the stock moved in your favor, the IV crush can erode profits quickly if you wait.

Yes. If the stock rises significantly, you can close one call to take partial profits and reduce risk. If the stock falls, you can close the calls to cut losses and ride the put. Straps are flexible for adjustment.

You have 2 calls. Each call only needs to cover half the total premium for the position to break even. So upper BE = Strike + (Premium/2). The 2 calls work together, halving the required move on the upside.

ATM provides maximum gamma (sensitivity to movement) but costs more. OTM reduces cost but needs a bigger move. For most traders, ATM or 1-strike OTM is optimal. Very OTM is only for expecting massive moves.

Start with delta-neutral by selling stock to offset the +50 delta. As stock moves and delta changes, rebalance by buying/selling stock. Each rebalance locks in gamma profits. Be aware of transaction costs, especially Singapore's stamp duty on purchases.

Steep put skew means puts are relatively expensive compared to calls. Since you're buying 2 calls and only 1 put, this actually benefits straps - your call cost is relatively lower. Steep skew makes straps more attractive than strips.

Standard is 2:1 (2 calls:1 put). Aggressive is 3:1 or 4:1 for stronger bullish bias. Mild is 3:2 for slight bias. Higher ratios increase directional exposure and theta decay. Match ratio to conviction level.

When a stock is consolidating near resistance, a strap can capture a breakout. If it breaks up, 2 calls provide leveraged profit. If it breaks down, the put provides protection. Entry timing is when consolidation is mature.

In backwardation (front month IV > back month), front month options are expensive - the market is pricing in near-term event risk. Consider whether the premium is justified. In contango, front month is relatively cheaper but with less time.