Strip options strategy explained
By Ken Chigbo, Founder, KenMacro. Published 2026-05-13.
Quick answer
A strip is a non-directional volatility structure that leans bearish. The trader buys two puts and one call at the same strike and expiry. It profits from a large move in either direction, but the double put weighting means downside breakouts pay roughly twice as much as upside breakouts of equal size.
What is strip options strategy?
The strip options strategy is a long volatility position built from two at-the-money puts and one at-the-money call, all sharing the same strike and expiration. Structurally it resembles a long straddle, but the extra put weights the payoff towards downside scenarios. Maximum loss equals the combined premium paid, realised if the underlying expires exactly at the strike. The strategy carries unlimited profit potential on a sharp decline and capped-by-strike profit potential on a rally, with breakeven points sitting further from the strike than a straddle of equivalent capital outlay.
How traders use strip options strategy
Retail traders deploy strips ahead of binary events where the base case is a large fall but a relief rally cannot be ruled out, for example a profit warning, a regulatory ruling, or a central bank decision skewed dovish. Institutional desks use the structure when their volatility surface model flags cheap downside convexity relative to realised move expectations. Position sizing typically reflects the doubled put exposure, so traders treat the strip as roughly two thirds bearish, one third long upside tail. Execution usually happens as a single combo order to control slippage on the third leg. The position is closed before expiry to harvest gamma rather than held into pin risk at the strike, where theta decay accelerates sharply in the final sessions.
Worked example of a strip options strategy
Consider a stock trading at 100 before an earnings release the desk expects to disappoint. The trader buys two 100-strike puts and one 100-strike call, both expiring two weeks later. Total premium paid sets the maximum loss. If the stock falls to 85, both puts gain intrinsic value while the call expires worthless, producing a large net profit. If the stock rallies to 115, only the single call pays out, generating a smaller profit. If the stock closes near 100, the position loses the full premium. The bearish skew comes purely from leg weighting, not strike selection.
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Frequently asked
How does a strip differ from a straddle?
A straddle holds one call and one put at the same strike, giving symmetric exposure to upside and downside moves. A strip holds two puts and one call at the same strike, doubling the downside payoff while keeping the upside payoff identical to a straddle. The trade-off is a higher premium outlay, since the trader pays for a second put. Strips suit views where volatility is expected but the direction of the breakout is more likely to be lower.
When is a strip preferred over a straight long put?
A long put gives a directional bet on a fall, with zero payoff if the underlying rallies. A strip retains the bearish lean but adds protection if the trader’s directional read is wrong and the underlying gaps higher. The cost is higher absolute premium and a wider breakeven on the downside, since the extra call premium must also be recovered. Strips are chosen when conviction on direction is moderate but conviction on a large move is high.
What is the maximum loss on a strip?
Maximum loss equals the total premium paid for both puts plus the call, and it is realised only if the underlying expires exactly at the chosen strike. In practice, partial losses occur across a narrow band around the strike where neither leg generates enough intrinsic value to cover premium. Because three legs are purchased, the strip is more expensive than a straddle on the same strike, raising the bar for the move size needed to break even.
Is the strip suitable for low-volatility environments?
Generally no. Strips are long vega and long gamma, meaning they benefit from rising implied volatility and large realised moves. Buying a strip when implied volatility is already elevated risks paying inflated premiums that decay rapidly if the expected event fails to deliver the move. Traders typically screen for setups where implied volatility looks underpriced relative to the desk’s expected realised move, then size the position to survive a few sessions of theta bleed.
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