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What is a covered straddle?

What is a covered straddle?

A covered straddle is a bullish options strategy, where the investors write the same number of puts and calls with the same expiration and strike price on a security owned by the investor.

If an investor owns a stock and is bullish about where it’s price is headed, they may use a covered straddle strategy to provide them the ability to buy more shares at a set price (the call option portion of the straddle) while also giving them the option to sell the security at the same price (the put portion of the straddle).

The covered straddle strategy is not a fully covered one since only the call option portion of the straddle is actually covered. The put position is uncovered, which means that if assigned/exercised, it would require the option writer to buy the stock at the strike price.

The profit available in the covered straddle strategy is limited to the number of premiums collected when the options were sold, plus any gains you can get from your long stock position before it gets called away.

Keywords: volatility, portfolio management, neutral strategy, calls, puts, options, short, writing options, long, option premium,
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