Introduction
The Strap (Bullish Straddle) is a powerful options strategy designed for traders who expect a big upside movement in the market but still want some downside protection. Unlike a regular Straddle, which is neutral, the Strap gives more weight to the bullish side by having two call options and one put option.
This strategy is ideal when traders anticipate a strong upward breakout, such as before earnings announcements, economic data releases, or major corporate events.
In this blog, we will break down the Strap Strategy, explain its risk-reward characteristics, and show how to execute it efficiently using Algomojo.
What is a Strap (Bullish Straddle)?
A Strap consists of:
✔ Buying 2 At-The-Money (ATM) Call Options
✔ Buying 1 At-The-Money (ATM) Put Option
This setup creates a bullish bias while still allowing for some gains if the market falls. Since there are twice as many call options, the profit potential on the upside is much higher compared to the downside.
Structure of a Strap Strategy
This strategy involves two trades:
1️⃣ Buy 2 ATM Call Options (Bullish Exposure)
2️⃣ Buy 1 ATM Put Option (Limited Downside Protection)
This creates a position that benefits more from an upward movement but still provides some protection if the stock moves lower.
Example of a Strap Trade
Assume Stock XYZ is trading at ₹1000. You execute the following trades:
📌 Buy 2 ATM Call Options (Strike Price: ₹1000) at ₹50 each
📌 Buy 1 ATM Put Option (Strike Price: ₹1000) at ₹40
Total Premium Paid:
(₹50 × 2) + (₹40 × 1) = ₹140 per lot
📌 Possible Outcome Scenarios
| Stock Price at Expiry | Call Profit (2 lots) | Put Profit (1 lot) | Net Profit/Loss |
|---|---|---|---|
| ₹900 | ₹0 | +60 | -80 |
| ₹1000 | ₹0 | ₹0 | -140 |
| ₹1100 | +200 | ₹0 | +60 |
| ₹1200 | +400 | ₹0 | +260 |
- If stock moves above ₹1200 → HIGH PROFITS ✅
- If stock moves below ₹900 → Limited Loss ❌
Key Takeaways
✅ Bullish Bias – More call options give higher upside profit.
✅ Limited Downside Risk – The put option provides some protection.
✅ Profits from Volatility – Works best when big price movements happen.
✅ Ideal for News Events – Use before earnings, elections, or major economic events.
Payoff Structure of a Strap Strategy
| Scenario | Impact |
|---|---|
| Price remains stagnant | ❌ Loss due to time decay |
| Price moves up sharply | ✅ High profit potential |
| Price moves down sharply | ✅ Moderate profit (due to put option) |
| Volatility increases | ✅ Beneficial as options gain value |
| Volatility decreases | ❌ Loss due to time decay |
Advantages of a Strap Strategy
📈 Higher Profit on Upside – Since there are two calls, profits increase significantly when the stock moves higher.
📉 Limited Loss – The maximum loss is only the premium paid.
⚡ Works Well with High Volatility – If the market moves sharply in any direction, this strategy benefits.
💰 Simple Execution – Only three legs are involved.
Risks and Considerations
❌ Higher Initial Cost – The premium paid is higher than a regular Straddle.
❌ Loss in a Sideways Market – If the stock doesn’t move, time decay will eat into the profits.
❌ Limited Profit on Downside – Since there is only one put, downside profits are lower than upside profits.
Step-by-Step Implementation in Algomojo
With Algomojo, traders can seamlessly execute Strap (Bullish Straddle) strategies using automated order placement and execution.
1️⃣ Create a Buy Order for 2 ATM Calls (Bullish Position)
📍 Path: My Strategy → New Strategy
✔ Choose a near-the-money (ATM) call option.
✔ Select the ATM strike price with the correct expiration.
✔ Buy 2 Lots to create a strong bullish exposure.
✔ Verify the lot size and margin requirements.
2️⃣ Create a Buy Order for 1 ATM Put (Downside Protection)
📍 Path: My Strategy → New Strategy
✔ Choose a near-the-money (ATM) put option.
✔ Buy 1 Lot to hedge against downward moves.
✔ Ensure correct lot size and margin allocation.
3️⃣ Group the Strategy into a Single Trade
📍 Path: My Group Strategy → New Group Strategy
✔ Combine both legs into a Strap Strategy.
✔ Name the strategy for easy identification.
4️⃣ Enable Paper Trading Mode
📍 Path: My Group Strategy
✔ Test the strategy before deploying it live.
✔ Simulate market conditions to observe behavior.
5️⃣ Generate a BUY Signal to Execute the Trade
📍 Path: My Group Strategy
✔ Click BUY to place all legs simultaneously.
✔ Ensure all orders are successfully placed.
6️⃣ Verify Execution in the Order Book
📍 Path: My Group Signals → Orders
✔ Check if both Call & Put options are executed properly.
✔ Ensure the lot size and strike prices match the intended trade setup.
7️⃣ Monitor Open Positions & Track Market Movement
📍 Path: My Group Signals → Positions
✔ Track stock movement and volatility changes.
✔ Monitor Theta decay (Time Decay) and adjust the strategy if necessary.
8️⃣ Generate a SELL Signal to Exit the Trade
📍 Path: My Group Strategy
✔ Exit the position when the desired profit target is reached.
✔ Avoid holding until expiration unless necessary.
9️⃣ Confirm Closing Orders in the Order Book
📍 Path: My Group Signals → Orders
✔ Ensure both legs (Call & Put) are exited at the intended price.
✔ Validate the final Profit & Loss (PnL) impact.
🔟 Review Trade Performance & Optimize Strategy
📍 Path: My Group Signals → Positions
✔ Analyze trade metrics, including PnL, volatility impact, and execution efficiency.
✔ Optimize future Strap Strategy setups based on insights.
✔ Adjust the ratio (e.g., 2:1 or 3:1) for better risk-reward management.
Frequently Asked Questions (FAQ)
1️⃣ How is a Strap different from a Straddle?
📌 Straddle → Neutral strategy with 1 Call + 1 Put.
📌 Strap → Bullish-biased strategy with 2 Calls + 1 Put.
2️⃣ When should I use a Strap Strategy?
📌 When you expect high volatility and a bullish move.
3️⃣ What if the stock moves sideways?
📌 A small loss occurs due to time decay.
4️⃣ Can I execute a Strap with OTM options?
📌 Yes, but ATM options provide better results.
5️⃣ Is this strategy suitable for high volatility markets?
📌 Yes! Straps work best when volatility is high.
6️⃣ Can I execute this strategy manually?
📌 Yes, but using Algomojo automates execution, reducing manual errors.
Final Thoughts
The Strap (Bullish Straddle) is a great strategy for traders expecting a big upside breakout while still keeping some protection on the downside.
By using Algomojo, traders can efficiently execute, monitor, and optimize this strategy with automated order placement and real-time tracking.
💡 Have you used the Strap strategy before? Share your experience in the comments! 🚀🔥
Would you like a payoff chart for this strategy? Let me know! 😊