For demonstration we consider the EURUSD OTM instruments while formulating option strips strategy.
Scenario 1: What if underlying moves down:
The puts we deploy were not very far off from the ATM strike and cheap too (because OTM contracts). In terms of percentage they will increase very fast. The call will decrease in value - but it will become first ATM and then go OTM.
A 100 point movement can bring in good profits. Because when you book profits and sell the call you will still get a good premium. You are already making good profits from the puts. Result: Not a big loss from the call, and great profits from the puts as result of more proportion of puts (1:2) it gives leveraging effects to the portfolio.
Scenario 2: What if underlying stays in range:
If the options you bought were cheaper you can hold onto expiration, else you should short after seeing no movement in near future depending upon expiries. Usually whatever movement has to come it comes in near term (3-4 days per say) after any significant news.
Then the news dies down and normal trading begins. Which indirectly means there is no point in waiting after those 3-4 trading days. Sell all options bought and book loss/profits.
Scenario 3: What if underlying moves up:
The call option was already ITM so, it will have a good delta and will move faster. The two put options bought will lose value fast, but this call option will be bringing in profits. Though since its only 1 lot, you may have to wait for some time to book profits.
Not sure here because a lot of Greeks decide the option price but if the underlying moves up 2% up in 2 days - the profit from the call bought should surpass the losses from the puts to a good extend. Remember that volatility has decreased, so 1% movement may not be enough.
