# Strategy Number 15 – Long “Strap”

 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.