An option strategy in which one call and one put with the same strike price and expiration are written against 100 shares of the underlying stock. In actually, this is not a "covered" strategy because assignment on the short put would require purchase of stock on margin. This method is also known as a covered combination.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
An options strategy in which an investor takes a position on a call and a put with the same strike price and expiration date on an underlying security that the investor already owns. One 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 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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