Strip Strategy

A strip profits from either direction, just more from downside. If you buy only puts and the stock rises, you lose everything. With a strip, a big upward move still profits (from the call). It's for when you expect volatility but have a bearish lean.

A strip costs the premium of 1 call + 2 puts. For ATM options, this might be roughly 3% 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 strips need a catalyst - you need the stock to move to profit. Time decay is your enemy.

Yes! If the stock rises above the upper breakeven (strike + total premium), you profit from the call. It's just that you profit less than you would from an equal downside move. A S$3 rise gives S$3 profit; a S$3 fall gives S$6 profit.

A straddle is 1 call + 1 put (neutral bias). A strip is 1 call + 2 puts (bearish bias). Both profit from big moves, but the strip profits twice as much on downside moves. Choose strip when you think down is more likely.

If you're very confident the stock will fall, long puts are cheaper. If you think it will fall but want protection if wrong, use a strip. The call in a strip protects you if the stock rallies instead of falling.

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

You have 2 puts. Each put only needs to cover half the total premium for the position to break even. So lower BE = Strike - (Premium/2). The 2 puts work together, halving the required move on the downside.

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 buying 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 makes puts relatively expensive. Since you're buying 2 puts, this increases strip cost significantly. In steep skew, consider split strikes (lower strike for puts) or alternative strategies. Flat skew favors standard strips.

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

Match strip delta to portfolio exposure. A portfolio with +1000 delta needs approximately 20 strips (-50 delta each) for full hedge. Size based on desired hedge percentage. Consider index strips for broad portfolio hedge.

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.