An option strategy that involves writing the same number of puts and calls with the same expiration and strike price on a stock owned by the investor. A covered straddle is a bullish strategy. The covered straddle strategy is not a fully "covered" one, since only the call option position is covered.

Long Straddle Option Strategy - The Options Playbook

The put write position is "naked", or uncovered, which means that if assigned, it would require the option writer to buy the stock at the strike price. While gains with the covered straddle strategy are limited, large losses can result if the underlying stock tumbles to levels well below the strike price at option expiration.

Covered Straddle

If the stock does not move between the date that the positions are entered and expiration, the investor collects the premiums and realizes a small gain.

Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund.

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