A relatively simple trading strategy that involves buying a set of options, two calls and one put, with the same strike price and expiration date on a stock. The strap is a more focused version of the straddle, and is popular due to its unlimited profit, limited risk nature. The maximum loss that a strap can incur occurs when the equity price on the expiration date of the options is the same as the price on the date the options were purchased. In this case, the loss is equal to the sum the three-option set was purchased for. However, with any deviation in the price either up or down, the strategy recovers at least some of the cost of purchasing the options. See: Strip, Straddle

Investing Essentials

Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

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Meff Renta Variable

Stock index and equity derivatives market in Spain trading futures and options on the Iberian Exchange (IBEX)-35 index and on individual stocks.

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