Covered Straddle Write

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Covered straddle write

The term used to describe the strategy in which an investor owns the underlying security and also writes a straddle on that security. This is not really a covered position.

An option strategy in which an investor writes (sells) a call and a put with the same strike price and expiration date on an underlying security that the investor already owns. A person may have a covered straddle when he/she believes that the market for the underlying asset will be volatile and will undergo dramatic price changes but is unsure of which direction the changes will go. Like all straddles, a covered straddle allows the investor to profit regardless of which direction the underlying asset moves (provided there is a significant movement). A small price change in either direction will result in a loss. It is important to note that a covered straddle differs from a covered option.

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