Market Movements

^{*Weekly Return is calculated as market open of the previous Wednesday, to market close this Tuesday (yesterday); Current Level is Tuesday’s (yesterday’s) close.}

Weekly Rollout

Markets got a jolt of optimism this week as the U.S. and China struck a temporary tariff truce, triggering a 90-day pause in their trade spat. Stocks responded with enthusiasm—SPY and QQQ climbed, while the Dow took a modest breather. Investors welcomed the breather, hopeful the détente will ease economic friction and buy time for a longer-term deal.

Meanwhile, the Fed stayed put on interest rates, holding steady in its latest meeting as inflation data cools slightly. In the options market, bullish plays ticked up, especially in tech and consumer names—traders clearly sensing room to run. With the macro backdrop calming (for now), many are shifting from defensive to opportunistic, betting that the soft landing might just stick.

“Good-To-Know’s”

For example, if XYZ stock is at $135, a short $145 call (-0.25 delta) and a short $125 put (+0.20 delta), combined with 100 shares of long stock (+1.00 delta), result in a net delta of approximately +0.95—indicating bullish exposure.

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Thought Throttle

Cash-Secured Puts (CSPs) and Covered Calls (CCs)—profitable, flexible, and easy to understand.

But there comes a time when every trader/investor wakes up and realizes that these two strategies alone do not round out their ‘options selling toolbox.’ There have to be ways to build on these fundamental strategies.

This week, we’re building on last week’s Iron Condor by exploring a similar but more bullish-leaning strategy: the Covered Strangle.

What is a Covered Strangle?

A Covered Strangle combines two familiar plays:

• A Cash-Secured Put (CSP) on the downside

• A Covered Call (CC) on the upside

You sell both at the same time, collecting premium from each side. But what makes this “covered” is the fact that you already own the stock and have enough cash to buy more if the put is assigned.

Covered Strangle Illustration:

It’s running both a CSP and a CC—but in one trade all at once.

Why Bother?

What makes this strategy powerful is its ability to stack premiums—you're collecting income from both sides of the trade, which heightens your returns compared to running a cash-secured put or covered call on its own.

It's especially effective in a neutral-to-bullish market outlook, where you're comfortable holding your current shares and wouldn't mind acquiring more, particularly if you believe in the stock's long-term value. Additionally, the extra premium collected helps lower your break-even point, giving you a greater buffer in case the stock price declines.

How Does it Compare to Iron Condors?

While a Covered Strangle and an Iron Condor may appear similar at first glance—both involve selling an out-of-the-money (OTM) call and an OTM put—the key difference lies in how each strategy is "covered" and what market conditions they're designed for.

In a Covered Strangle, the position is backed by owning the underlying stock and having enough cash to buy more if assigned. Essentially, it’s a combination of a covered call and a cash-secured put.

In contrast, an Iron Condor uses options to hedge both sides of the trade: each short option (call and put) is protected by purchasing a further OTM option, creating a fully defined-risk trade with no need to hold the stock or cash.

Iron Condor Illustration:

Another major distinction is the market outlook. Iron Condors are best suited for neutral market conditions, where the goal is for the underlying to remain within a specific price range between the short strikes at expiration.

Covered Strangles, on the other hand, work better in a neutral-to-bullish environment. Since the trader is already holding the stock and open to acquiring more, upward price movement is welcome, and even moderate downside can be acceptable due to the extra premium collected. Ideally, the stock price trends toward the short call strike, maximizing premium income while maintaining ownership.

Comparison:

Consider the Covered Strangle Risks

There are several risks to consider with this strategy. One of the primary concerns is assignment risk, which exists on both sides of the trade—you could be assigned to purchase additional shares if the stock falls, and your existing shares could be called away if the stock rallies past the call strike. It’s important to be comfortable with both outcomes before entering the trade.

There’s also downside risk: if the stock drops significantly, you may be left holding shares at a loss, just like with any cash-secured put or covered call. This makes the strategy a poor fit for speculative or fundamentally weak stocks.

Another trade-off is opportunity cost. If the stock price surges well beyond the call strike, your upside is capped—meaning you could miss out on larger gains while still being obligated to sell your shares at the lower strike price.

Lastly, this is a capital-intensive strategy. It requires you to already own 100 shares of the stock and have enough cash on hand to potentially buy 100 more, which can tie up a meaningful amount of capital.

Final Thoughts

The Covered Strangle is a flexible, high-probability (usually) strategy that lets you generate additional yield from stocks you already own—or want to own more of. It works best when you’re managing a core equity position and looking to squeeze out extra returns through options.

Just like with Iron Condors, the key is discipline. Knowing when to enter, how far out to sell your strikes, and what to do if one side gets tested is where the edge lies—not in predicting what the stock will do, but in managing what you’ll do when it does.

This strategy won’t make headlines—but it can steadily grow an account through consistency and disciplined risk management. That said, there are no guarantees. Losses can still occur, especially in volatile or sharply trending markets, so traders must remain vigilant and size positions appropriately.

Throttle Q&A

What happens if the stock moves outside my strikes?

If the stock drops below your short put, you’ll likely be assigned—meaning you’ll have to buy 100 more shares at the strike price. Since this is a cash-secured put, you’re already prepared with the capital.

If the stock rises above your short call, your 100 existing shares may be called away—you’ll have to sell them at the call strike price, capping your upside.

The key: You need to be okay with both scenarios when you enter the trade. That’s why this strategy works best on stocks you want to accumulate or are fine parting with at a profit.

How much capital do I need to run a Covered Strangle?

You need enough capital to:

• Own 100 shares of the stock (for the covered call)

• Buy 100 more shares if assigned on the short put

So the total capital required is roughly:

(Current share price × 100) + (Short put strike × 100) - Premiums received

This is a capital-heavy strategy, but it gives you two sources of premium and strong risk control—making it ideal for income-focused traders who are long-term bullish on the stock.

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