# Options Strategies

## Strategy Number 14 - Long "Strip"

 Market dATA DJ Index 100 points Prices Call 100 \$1,000 Put 100 \$1,000

Strategy name:

Long "Strip".

Recommended use of strategy

Expectation of volatile index but with a greater change of a decrease. Returning to the example of the elections, we forecast a higher probability of Y being expected President -- driving down the index.

Strategy components

Buying 2 Put options of identical strike price.

Buying one Call option with the same strike price.

For example: Buying 2 Put 100 options and one Call 100 option.

Expenses / Income from building the strategy

Expenditure of \$3,000

Strategy graph:

Auxiliary table for building the profit line

 DJ Index(Horizontal axis) (Fixed expenses)/ fixed income Variable income(Call contribution) Variable income(Putl contribution) Total profit / (loss) (Vertical axis)2+3+4 1 2 3 4 5 50 (\$3,000) --- \$10,000 \$7,000 60 (\$3,000) --- \$8,000 \$5,000 70 (\$3,000) --- \$6,000 \$3,000 80 (\$3,000) --- \$4,000 \$1,000 90 (\$3,000) --- \$4,000 (\$1,000) 100 (\$3,000) --- --- (\$3,000) 110 (\$3,000) \$1,000 --- (\$2,000) 120 (\$3,000) \$2,000 --- (\$1,000) 130 (\$3,000) \$3,000 --- \$0 140 (\$3,000) \$4,000 --- \$1,000 150 (\$3,000) \$5,000 --- \$2,000

Strategy analysis:

The strategy analysis is similar to that of the Long "Straddle".

Source of Profit

We profit when there is a change in the index.

When the index goes up, we profit on the call option.

When the index goes down we profit on the 2 Put options.

The profit is greater if the index falls.

Source of loss

The loss derives from buying the strategy and decreases when a change occurs in the DJ Index and we start to make a profit.

Break-even point

When the profit from the Call option or from the 2 Put options covers the cost of purchase, \$3,000. This occurs when the index is at 130 points or 85 points.

In this case we use a strategy similar to the "Strip", known as a "Strap" (the next strategy).

Strategy Number 14 - Long "Strip"533