What it is
You own 100 shares, sell a call above today's price and sell a put below it, all expiring on the same date. It is a covered call and a cash-secured put on one stock at the same time, and it collects both premiums.
Only the call is covered. The shares you hold back the call. The put is backed by nothing you own yet: if it is assigned you buy a second 100 shares at its strike, so the cash for that purchase, or the margin to carry it, has to be there as well.
What has to happen for it to make money
A stock that stays roughly where it is, or drifts up toward the call's strike. Between the two strikes both options expire and you keep both premiums on top of whatever the shares did. Above the call's strike the shares are sold there, which caps the gain the way a covered call does.
Below the put's strike the position loses on two lots at once: the shares you already held are falling, and the put obliges you to buy another 100 at a price above the market. That is why the payoff steepens on the left of the chart. The break-even sits higher than a covered call's would, but the loss below it grows twice as fast.
Falling volatility helps while both options are open, since both are worth less to buy back.
Once it is on
The two sides are managed separately even though they were opened together. A rally brings the call into play and the decisions of a covered call: let the shares go, or roll. A fall brings the put into play and the decision of whether you want the second lot. People who run this usually think of it as a way to build a position on the way down and sell it on the way up, which only works if owning twice the shares at the lower price is something they would have chosen anyway.
What goes wrong
A steep fall. It is the one move this position handles worst: the loss on the shares you held, plus a loss on shares you are made to buy, with two premiums against it. A position that looked like a moderately sized holding is, below the put's strike, twice that size.
A sharp rally still caps the shares at the call's strike, so the upside is the covered call's, no more.
Pros and cons
- Pro: two premiums on one stock in the same cycle.
- Pro: a flat stock pays both in full.
- Pro: if the put is assigned, the new shares cost less than today's price.
- Con: below the put's strike, losses run on two lots of shares.
- Con: the upside is still capped at the call's strike.
- Con: needs enough cash or margin to buy the second lot.
In Restrike
The call sits under the shares on the Portfolio and the put is its own short put. The Log keeps the two as separate positions, since a pair of sold options is not something it folds together; give both the same strategy label and the scorecards treat them as one strategy. Restrike imports them read-only from your broker and never places a trade.