Covered Strangle Calculator
A covered strangle owns 100 shares and sells both an out-of-the-money call and an out-of-the-money put. You collect double the premium of a covered call, but you take on extra downside: a falling stock loses on the shares and obligates you to buy 100 more at the put strike.
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Key characteristics
- Own 100 shares, sell an OTM call and an OTM put: two premiums of income.
- Best when mildly bullish to neutral and happy to own more shares lower.
- Max profit = (call strike − cost basis) × 100 + both premiums, reached at or above the call.
- Heavy downside: stock losses plus the short put (a second 100-share obligation).
When to use a covered strangle
Use it on a stock you already own and would happily buy more of at a lower price. The short put turns "I would add lower" into income today, while the short call does the usual covered-call job of selling upside for premium.
It suits range-bound or slowly rising names where you want maximum income and are comfortable with the share count changing — adding at the put strike or being called away at the call strike.
Risks and management
The downside is the catch. If the stock falls hard you lose on your shares and the short put goes in the money, forcing you to buy another 100 shares — effectively a leveraged long into weakness. Keep enough cash to honour the put.
Manage it like two trades: roll or close the short put if the stock breaks down, and let the short call cap or exit the upside. Avoid it ahead of binary events where a gap down hurts twice.
Calculate it live
Use the free OptionProfit Covered Strangle calculator to load a live option chain, build the trade, and instantly see the payoff chart, breakevens, probability of profit, Greeks and a Monte Carlo simulation of outcomes.
- Double-premium income: a covered call plus a cash-secured put on the same stock.
- Max profit is capped at the call strike; income cushions a small drop.
- Big risk if the stock falls — you own shares and must buy 100 more at the put.
- Use only on names you want to own more of, and keep cash for assignment.
Frequently asked questions
How is a covered strangle different from a covered call?
A covered call sells only an upside call. A covered strangle adds a short put below, doubling the income but adding the obligation to buy another 100 shares if the stock falls to the put strike.
Do I need extra capital?
Yes. The short put should be cash-secured — keep enough cash to buy 100 more shares at the put strike, otherwise a drop can force a margin problem on top of share losses.
What is the ideal outcome?
The stock drifts up to or just below the call strike at expiration: you keep both premiums and most of the share gains, and neither option is assigned painfully.
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