Strategy lesson · Advanced · bullish
Covered Strangle Explained
Long stock + short OTM call + short OTM put — income-focused, bullish-leaning, with elevated downside versus a plain covered call.
How a Covered Strangle is built
Own 100 shares, sell OTM call, sell OTM put.
This strategy typically includes a stock leg (buy 100 shares in the default template).
- Leg 1: sell call · strike template 110 · premium ~1.8 · 1 contract(s)
- Leg 2: sell put · strike template 90 · premium ~1.8 · 1 contract(s)
Risk & reward snapshot
| Market bias | bullish |
|---|---|
| Max profit | Capped by short call; includes premiums and modest stock upside to call strike. |
| Max loss | Stock decline plus potential put assignment (effectively more share risk). |
| Breakeven | Lowered by premiums but still substantial on selloffs. |
Figures are conceptual for the classic structure. Your actual premiums, strikes, and fees change the numbers — confirm on the calculator.
When traders use it
- Bullish income stance and willingness to accumulate more shares via short put.
Key risks
- Double downside: long stock + short put can mean 200-share economic exposure if assigned.
Practical tips
- Only use on underlyings you want to own more of; size carefully.
Practice on the calculator
- Open the Covered Strangle calculator.
- Load a symbol and option chain; fill realistic mid premiums.
- Review max profit, max loss, breakevens, and the date × price heatmap.
- Change strikes and DTE to see how risk shape shifts.
FAQ
What is a Covered Strangle?
Long stock + short OTM call + short OTM put — income-focused, bullish-leaning, with elevated downside versus a plain covered call.
What is the max loss on a Covered Strangle?
Stock decline plus potential put assignment (effectively more share risk).
When should I use a Covered Strangle?
Bullish income stance and willingness to accumulate more shares via short put.