A high risk, limited reward options strategy similar to the covered short call (also called covered call write). That means, the covered short straddle resembles writing or shorting two covered calls. Therefore it incorporates three positions: a short call, a short put and a long stock. The uncovered put (naked put), of course, is a mirror image of a covered call. In this strategy, the short call and short put must have the same strike and expiration month. The long stock covers the short call, while the short put goes by naked. Of course, the addition of the long stock makes the covered short straddle less risky than the short straddle. An investor following this strategy would base his expectations on the stock price remaining sluggish or moving upward, but not otherwise.
Derivatives
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