Strip Option Trading: Maximum Profit & Loss: Options, Futures, Derivatives & Commodity Trading

Strip Option Trading: Maximum Profit & Loss

Continuing further from our past article on Strip Option Trading: Payoff Functions Explained with Example. Here are the details of maximum profit and loss of strip option trading.
What is the maximum profit that can be achieved in Strip Option Trading
As we can see from the BROWN colored payoff function, the maximum profit comes when the stock moves in a big move in the upward direction. The farther the underlying stock price moves, the more profit the strip option trader makes.
On the downside as well, there is a big profit. Since there are 2 put option, for every price move in the underlying, there is double the profit. On the downside, when the stock price goes down to zero, then maximum profit comes as $88.5

Profit in Strip Option in upward direction = (Unlimited) Price of Underlying - Strike Price of Calls - Net Premium Paid

Profit in Strip Option in downward direction = 2 x (Strike Price of Puts - Price of Underlying) - Net Premium Paid

= 2 * 50 - 11.5 = $ 88.5

What is the maximum loss incurred in Strip Option Trading
The maximum loss in trading long strip option position is the net option premium paid
This will happen when the underlying stock price does not move much and stays near the stike price.

Maximum loss in Strip Option Trading = Option premium paid + Net option trading commission
= $11.5 + brokerage

What are the breakeen points of Strip Option Trading
There are 2 breakeen points for Strip Option Trade - one on the upper side and other on the lower side.

- Upper Breakeven Point for Strip Option Trade = Strike Price of Calls/Puts + Net Premium Paid

- Lower Breakeven Point for Strip Option Trade = Strike Price of Calls/Puts - (Net Premium Paid/2)

Strip Option Trading
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