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Advanced Options · ADV-20a · Advanced

Covered strangle

How does covered strangle express a ownership plus willingness to add shares view?

One concept per page · original written lesson · 552 prose words · authored, not installed or production-approved

What you will learn and prerequisites

Read first: Read a contract and its premium, Rights, obligations and expiration, Defined payoff risk is not margin, Read the whole multi-leg ticket

A covered strangle holds shares, sells a covered call and also sells a put. It earns additional premium by accepting an additional purchase obligation. Covering the call does not fund or protect the put.

Construction: read every leg

Own 100 shares at 100 and sell the 105 call and 95 put for two each. Credit is 400. Below 95 the existing shares and put liability both worsen. At zero, losses are 10,000 on stock plus 9,500 on the put less 400 premium: 19,100.

Read the ticket before the graph

BUY means you own an option right; SELL means you accept a short-option obligation. Positive quantities are long and negative quantities are short in the calculation. Check quantity, call/put, strike, multiplier and expiry before netting premium.

All legs in this example share November 20, 2026 expiration. The entry observation is October 6, 2026, with fictional QLT at 100. These are independent illustrative premiums, not a current option chain or executable quotes. The terminal diagram assumes every leg and any shares are resolved at one common settlement price.

Before expiry: time and volatility

The position is bullish and can become more bullish as price falls. This is the opposite of automatically reducing risk in a drawdown. Positive time-decay intent comes with increased exposure.

Manage the position deliberately

Budget for the additional shares and resulting concentration. Do not sell a put merely to rescue a losing stock position. The wheel can be conducted sequentially without holding every obligation simultaneously.

Fictional teaching ticket · no order submission

Covered strangle

QLT • reference spot $100 • independent illustrative prices • quote date 2026-10-06

Read action, quantity, type, strike, expiry, premium and multiplier before the payoff
ActionQtyTypeStrikeExpiryPremium/unitMultiplier
SELL1Call1052026-11-202100
SELL1Put952026-11-202100
BUY100Shares—No expiry1001
Opening option cash (+received / −paid)400 USD
Entry option fees in cost variant1.3 USD
Shares included100
Joint-terminal results—not a guarantee of interim cash requirements
MeasureBefore costsAfter stated entry fees
Maximum terminal profit900898.7
Maximum terminal loss magnitude19,10019,101.3
Breakeven settlement price(s)9696.013

This is a mathematical expiry experiment using the displayed legs, not an executable quote. The slider range is not a risk limit.

$0.65 per option contract on entry only. No exit, assignment, financing or tax costs modeled.

Independent fictional premiums, not one simultaneous arbitrage-consistent chain. All legs realized simultaneously at intrinsic at the same expiry; terminal calculations do not model American early exercise, temporary unhedged positions, forced liquidation or live liquidity. Displayed chart domain is not a tail-risk cap.

From opening cash to a settlement result

Read the opening instructions: sell 1 105 call at 2.00; sell 1 95 put at 2.00. Also hold 100 shares bought at $100.00. Option opening cash is $400.00 received as a credit. A received credit is not earned profit while the obligation remains open.

Set the common settlement price to 80.00. Calls have intrinsic value max(S−K,0); puts have max(K−S,0). Subtract the opening premium from each intrinsic value, then multiply by signed quantity and the 100-unit multiplier. Shares contribute their price change from their own cost. The calculation popup shows every leg.

The combined result is $-3,100.00 before costs and $-3,101.30 after illustrative opening fees of $1.30. Exit fees, slippage, funding, dividends and taxes are not included. Opening fees are 0.65 per option contract, not a statement of any broker's pricing.

Maximum terminal profit is $900.00; maximum terminal loss magnitude is $19,100.00, before costs. Isolated zero-P/L settlement points in the model: 96. Move the scenario slider across each strike and explain why the slope changes there. A strike is a contract threshold, not a prediction.

This terminal model is useful for comparing risk shapes, but actual American-style assignment, share delivery, forced liquidation or a failed multi-leg exit can produce a different path. A long protective leg is not an automatic instruction that a broker must exercise it when another leg is assigned.

Open the calculation without leaving this lesson

Calculate this exact ticket

Same-page calculation. Closing restores the lesson position and originating control.

P/L = Σ[q × multiplier × (intrinsic − opening premium)] + shares × (S−share entry) − costs

Intrinsic is nonnegative before the signed quantity is applied. This is a fictional terminal calculation.

  1. -1 × 100 × (0.00 − 2.00) = $200.00: 105 call.
  2. -1 × 100 × (15.00 − 2.00) = $-1,300.00: 95 put.
  3. 100 shares × (80.00 − 100.00) = $-2,000.00.
  4. Opening fees: 1.30.
Before costs $-3,100.00; after entry fees only $-3,101.30.

Maximum risk and breakevens

Same-page calculation. Closing restores the lesson position and originating control.

Evaluate S=0, all strikes and the final tail slope; solve P/L=0 on each linear segment.

Same-expiry payoffs are piecewise linear. A finite chart range cannot prove a tail is bounded.

  1. Maximum terminal profit is $900.00; maximum terminal loss magnitude is $19,100.00, before costs.
  2. Breakeven points: 96.
  3. Costs shift net P/L downward without moving the strikes.
Maximum terminal profit is $900.00; maximum terminal loss magnitude is $19,100.00, before costs.

The whole ticket at common expiry

Vertical: P/L per complete ticket (USD)
Horizontal: Underlying settlement price (USD)

The whole ticket at common expirySolid combined curve is before fees; the second includes only the stated entry fees. Individual-leg lines explain construction. This is terminal intrinsic P/L, not current option value. Price can move outside the displayed range. The complete numerical data are available below.-3,461.42-2,517.11-1,572.8-628.497315.811,260.12808896104112120
1. Combined terminal P/L before fees2. Combined terminal P/L after entry fees
Solid combined curve is before fees; the second includes only the stated entry fees. Individual-leg lines explain construction. This is terminal intrinsic P/L, not current option value. Price can move outside the displayed range.
See the individual legs behind the combined curveThe whole ticket at common expirySolid combined curve is before fees; the second includes only the stated entry fees. Individual-leg lines explain construction. This is terminal intrinsic P/L, not current option value. Price can move outside the displayed range. The complete numerical data are available below.-3,560.42-2,356.51-1,152.651.30341,255.212,459.12808896104112120
1. Combined terminal P/L before fees2. Combined terminal P/L after entry fees3. Leg 1: SELL 1 105 call4. Leg 2: SELL 1 95 put5. 100 shares at 100
Read the graph as a data table
Complete graph data; original fictional observations or model calculations
Underlying settlement price (USD)Combined terminal P/L before feesCombined terminal P/L after entry feesLeg 1: SELL 1 105 callLeg 2: SELL 1 95 put100 shares at 100
80-3,100-3,101.3200-1,300-2,000
80.5-3,000-3,001.3200-1,250-1,950
81-2,900-2,901.3200-1,200-1,900
81.5-2,800-2,801.3200-1,150-1,850
82-2,700-2,701.3200-1,100-1,800
82.5-2,600-2,601.3200-1,050-1,750
83-2,500-2,501.3200-1,000-1,700
83.5-2,400-2,401.3200-950-1,650
84-2,300-2,301.3200-900-1,600
84.5-2,200-2,201.3200-850-1,550
85-2,100-2,101.3200-800-1,500
85.5-2,000-2,001.3200-750-1,450
86-1,900-1,901.3200-700-1,400
86.5-1,800-1,801.3200-650-1,350
87-1,700-1,701.3200-600-1,300
87.5-1,600-1,601.3200-550-1,250
88-1,500-1,501.3200-500-1,200
88.5-1,400-1,401.3200-450-1,150
89-1,300-1,301.3200-400-1,100
89.5-1,200-1,201.3200-350-1,050
90-1,100-1,101.3200-300-1,000
90.5-1,000-1,001.3200-250-950
91-900-901.3200-200-900
91.5-800-801.3200-150-850
92-700-701.3200-100-800
92.5-600-601.3200-50-750
93-500-501.32000-700
93.5-400-401.320050-650
94-300-301.3200100-600
94.5-200-201.3200150-550
95-100-101.3200200-500
95.5-50-51.3200200-450
960-1.3200200-400
96.55048.7200200-350
9710098.7200200-300
97.5150148.7200200-250
98200198.7200200-200
98.5250248.7200200-150
99300298.7200200-100
99.5350348.7200200-50
100400398.72002000
100.5450448.720020050
101500498.7200200100
101.5550548.7200200150
102600598.7200200200
102.5650648.7200200250
103700698.7200200300
103.5750748.7200200350
104800798.7200200400
104.5850848.7200200450
105900898.7200200500
105.5900898.7150200550
106900898.7100200600
106.5900898.750200650
107900898.70200700
107.5900898.7-50200750
108900898.7-100200800
108.5900898.7-150200850
109900898.7-200200900
109.5900898.7-250200950
110900898.7-3002001,000
110.5900898.7-3502001,050
111900898.7-4002001,100
111.5900898.7-4502001,150
112900898.7-5002001,200
112.5900898.7-5502001,250
113900898.7-6002001,300
113.5900898.7-6502001,350
114900898.7-7002001,400
114.5900898.7-7502001,450
115900898.7-8002001,500
115.5900898.7-8502001,550
116900898.7-9002001,600
116.5900898.7-9502001,650
117900898.7-1,0002001,700
117.5900898.7-1,0502001,750
118900898.7-1,1002001,800
118.5900898.7-1,1502001,850
119900898.7-1,2002001,900
119.5900898.7-1,2502001,950
120900898.7-1,3002002,000

The failure case

Put assignment doubles share exposure during weakness. Evaluating the put as separate income missed its interaction with the existing stock.

Check your understanding

Try the question before revealing its answer. These are reading checks, not trading certification or a site completion record.

What is whole-position terminal P/L at QLT 80.00, before costs?

Reveal the worked answer

$-3,100.00

Use all signed legs, not just the winning leg. The popup and graph use the same ticket.

Critical risk question

Does a terminal loss bound guarantee every early-assignment or liquidation outcome?

Reveal the worked answer

No.

It describes the specified common-settlement payoff. Product rules, stock delivery, capital and execution still matter.

Takeaway

Explain the intended ownership plus willingness to add shares exposure, each leg's obligation and the adverse price region before using the strategy name.

Sources, assumptions and downloadable script

External references support definitions and conventions. Worked scenarios and prose are original. No current quotes or dealer inventory are claimed.

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