| Market dATA | |
| DJ Index | 100 points |
| Prices | |
| Call 100 | $1,000 |
| Put 100 | $1,000 |
Strategy name:
Long “Strap”.
Recommended use of strategy
Expectation of volatile index but with a greater chance of an increase.
Strategy components
Buying 2 Call options of identical strike price.
Buying one Put option with the same strike price.
For example: Buying 2 Call 100 options and one Put 100 option.
Expenses / Income from building the strategy
Expenditure of $3,000
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) | — | $5,000 | $2,000 |
| 60 | ($3,000) | — | $4,000 | $1,000 |
| 70 | ($3,000) | — | $3,000 | $0 |
| 80 | ($3,000) | — | $2,000 | ($1,000) |
| 90 | ($3,000) | — | $1,000 | ($2,000) |
| 100 | ($3,000) | — | — | ($3,000) |
| 110 | ($3,000) | $2,000 | — | ($1,000) |
| 120 | ($3,000) | $4,000 | — | $1,000 |
| 130 | ($3,000) | $6,000 | — | $3,000 |
| 140 | ($3,000) | $8,000 | — | $5,000 |
| 150 | ($3,000) | $10,000 | — | $7,000 |
Strategy analysis:
Source of Profit
We profit when there is a change in the index.
When the index goes up we profit on the 2 Call options.
When the index goes down we profit on the Put option.
The profit is greater if the index increases.
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 2 Call options or from the Put option covers the cost of purchase, $3,000. This occurs when the index is at 115 points or 70 points.
