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.