Similar to a straddle, but with a stronger bullish bias achieved by purchasing twice as many calls. The stock must move in order to generate money, but it will now profit more from an upward movement than from a downward one.
Description
Involves buying two call options and selling one put option on the same underlying security with the same expiration date. This is also known as a bullish strap. The goal of a strap strategy is to profit from a rise in the price of the underlying security.
If the price of the underlying security rises significantly, the value of the two call options that have been purchased will increase, and the trader can profit by selling the options at a higher price. If the price of the underlying security remains relatively stable or falls, the options will expire worthless, and the trader may incur a loss on the put option that was sold, but this loss will be offset by the premium collected from selling the put option.
Breakeven
the strike price of the call option plus the premiums collected from selling the put options.
Sweetspot
Stock price goes way up
Max profit
Unlimited. Equal to the premium collected from selling the put & call options
Max loss
Limited to the net debit paid
