t,r 20: The Sale ol a Straddle 305 
now rolls the entire straddle - rolling down for protection, rolling up for an 
ease in profit potential, and rolling forward when the time value premium of the 
die dissipates. Rolling up or down would probably involve debits, unless one 
led to a longer maturity. 
Some writers might prefer to make a slight adjustment to the covered straddle 
ting strategy. Instead of selling the put and call at the same price, they prefer to 
ell an out-of-the-money put against the covered call write. That is, if one is buying 
XYZ at 50 and selling the call, he might then also sell a put at 45. This would increase 
his upside profit potential and would allow for the possibility of both options expir­
ing worthless if XYZ were anywhere between 45 and 50 at expiration. Such action 
would, of course, increase the potential dollars of risk if XYZ fell below 45 by expira­
tion, but the writer could always roll the call down to obtain additional downside pro­
tection. 
One final point should be made with regard to this strategy. The covered call 
writer who is writing on margin and is fully utilizing his borrowing power for call writ­
ing will have to add additional collateral in order to write covered straddles. This is 
because the put write is uncovered. However, the covered call writer who is operat­
ing on a cash basis can switch to the covered straddle writing strategy without put­
ting up additional funds. He merely needs to move his stock to a margin account and 
use the collateral value of the stock he already owns in order to sell the puts neces­
sary to implement the covered straddle writes. 
THE UNCOVERED STRADDLE WRITE 
In an uncovered straddle write, one sells the straddle without owning the underlying 
stock. In broad terms, this is a neutral strategy with limited profit potential and large 
risk potential. However, the probability of making a profit is generally quite large, 
and methods can be implemented to reduce the risks of the strategy. 
Since one is selling both a put and a call in this strategy, he is initially taking in 
large amounts of time value premium. If the underlying stock is relatively unchanged 
at expiration, the straddle writer will be able to buy the straddle back for its intrinsic 
value, which would normally leave him with a profit. 
Example: The following prices exist: 
XYZ common, 45; 
XYZ January 45 call, 4; and 
XYZ January 45 put, 3.