CHAPTER 20 
The Sale of a Straddle 
Selling a straddle involves selling both a put and a call with the same terms. As with 
any type of option sale, the straddle sale may be either covered or uncovered. Both 
uses are fairly common. The covered sale of a straddle is very similar to the covered 
call writing strategy and would generally appeal to the same type of investor. The 
uncovered straddle write is more similar to ratio call writing, and is attractive to the 
more aggressive strategist who is interested in selling large amounts of time premi­
um in hopes of collecting larger profits if the underlying stock remains fairly stable. 
THE COVERED STRADDLE WRITE 
In this strategy, one owns the underlying stock and simultaneously writes a straddle 
on that stock. This may be particularly appealing to investors who are already 
involved in covered call writing. In reality, this position is not totally covered - only 
the sale of the call is covered by the ownership of the stock. The sale of the put is 
uncovered. However, the name "covered straddle" is generally used for this type of 
position in order to distinguish it from the uncovered straddle write. 
Example: XYZ is at 51 and an XYZ January 50 call is selling for 5 points while an XYZ 
January 50 put is selling for 4 points. A covered straddle write would be established 
by buying 100 shares of the underlying stock and simultaneously selling one put and 
one call. The similarity between this position and a covered call writer's position 
should be obvious. The covered straddle write is actually a covered write - long 100 
shares of XYZ plus short one call - coupled with a naked put write. Since the naked 
put write has already been shown to be equivalent to a covered call write, this posi­
tion is quite similar to a 200-share covered call write. In fact, all the profit and loss 
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