Strip
A straddle variant with a bearish lean — buy 2 ATM puts and 1 ATM call. Profits from a strong move either way, but more on the downside.
Profit / Loss Diagram
Strip at expiration
What is this strategy?
The Strip is a variant of the Long Straddle with a bearish lean. Construction: buy 2 ATM puts and 1 ATM call, all at the same strike and expiration. Where a classic long straddle is 1-and-1, the Strip doubles the puts to amplify gains in a decline.
The payoff is asymmetric: if the underlying falls you gain twice as fast through the doubled put position — every $1 of decline produces $2 of gain instead of $1. If the underlying rises you gain only $1 per dollar, through the single call. It suits situations where you expect a strong move but believe a decline is more likely or deeper.
Cost: the debit is roughly 50% higher than a straddle (2 puts + 1 call versus 1 put + 1 call). The breakevens are therefore asymmetric: closer on the upside, where less movement is needed, and further on the downside, where you need a moderate move but gain double per unit.
Construction
| Action | Instrument | Strike | Expiration | Example |
|---|---|---|---|---|
| BUY | 2 Puts | ATM | 30-60 DTE | +2 SPY May 450 Put |
| BUY | 1 Call | ATM (same strike) | Same expiry | +1 SPY May 450 Call |
Example
SPY at $450. You expect a strong move with a bearish lean. Strip at the 450 strike.
- Puts Purchased (2× 450) −$1,000 ($500 × 2)
- Call Purchased (450) −$500
- Net Debit $1,500
- Breakeven (upside) $465.00 (450 + 15.00)
- Breakeven (downside) $442.50 (450 − 15.00/2, because there are two puts)
- Profit if SPY = $400 +$8,500 (2 puts × $5,000 − $1,500 debit)
- Profit if SPY = $500 +$3,500 (1 call × $5,000 − $1,500 debit)
- Maximum Loss $1,500 (the debit) with SPY exactly at $450
The Greeks
2 puts outweigh 1 call, giving net negative delta at entry.
Three long options means aggressive decay.
Three long options gives very high vega. Significant gains from an IV expansion.
Very high long gamma — gains accelerate with a fast move.
Position Management
- 01 Close Before Expiration As with any long-volatility position, close before the final month to preserve extrinsic value.
- 02 Take Asymmetric Profits If the move is bearish, consider closing the puts first to bank the doubled gain, leaving the call to cover a reversal.