Covered Strangle Calculator

A covered strangle is one hundred shares with a short call above the price and a short put below it. The call is covered by the shares; the put is not covered by anything, so a fall assigns more shares at the put strike. It collects two premiums and suits an investor who would be happy either to sell the shares higher or to buy more lower.

When it is used

Investors who want to add to a position on a dip and trim it on a rally use the covered strangle to be paid for both intentions. It is common on steady, dividend-paying stocks in a portfolio where more shares at the put strike would be welcome. It is a bullish position with a lot of downside exposure.

How it makes and loses money

A sideways or rising stock earns both premiums, with the shares called away above the call strike. A fall loses on the shares and on the short put together, which is twice the share exposure below the put strike. Time decay and falling volatility help on both short options.

What to check in the grid

The bottom rows fall twice as fast as the shares alone below the put strike; compare them by removing the put leg. The top rows are flat above the call strike. The summary's max risk is large, because it assumes the stock can go to zero, and it is worth reading that number before deciding the position size.