Answer-first summary for fast verification
Answer: I., II. and III.
**Correct answer: C. I., II. and III.** - **I is correct**: A **strip** is a long straddle plus one additional put, so it has a bearish bias. - **II is correct**: A **strap** is a long straddle plus one additional call, so it has a bullish bias. - **III is correct**: Both strategies are **volatility trades**. They benefit from large price movements and lose money when prices remain range-bound. - **IV is false**: Both the strip and strap require buying **three options instead of two**, so they are **more expensive** than a straddle, not cheaper.
Author: Manit Arora
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Q-185.4. Consider the following statements about strips and straps:
I. A strip is a straddle plus long one put option, and is therefore bearish
II. A strap is a straddle plus long one call option, and is therefore bullish
III. Both the strip and strap are volatility trades: uncapped potential reward under big price moves but a losing trade under range-bound scenarios
IV. Both the strip and strap are cheaper than the straddle
Which of the above are CORRECT?
A
I. and III.
B
II. and IV.
C
I., II. and III.
D
All of them
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