The traditional wheel strategy involves selling puts to acquire shares, then selling covered calls to generate income. But what if you could supercharge that process and collect both the call and the put premium from day one while positioning yourself to own more shares at a discount?
That’s the core idea behind the covered straddle. You hold 100 shares of stock, then sell both an at-the-money call and an at-the-money put. This gives you upfront income from both sides and allows you to accumulate additional shares at a reduced basis if the stock declines. It’s more aggressive than a standard covered call, but it can deliver higher income potential, especially on stable, dividend-paying stocks you're willing to hold long term.
With our Custom Scan feature, you can screen the market for ideal covered straddle setups using your own criteria or simply select from our predefined scan (see link at the bottom of the article), built specifically to identify these opportunities. Whether you’re seeking premium income or looking to lower your long-term cost basis, the covered straddle offers a flexible way to do both.
Why Consider the Covered Straddle?
Covered straddles can be especially attractive in the following cases:
You already hold 100 shares of a stable stock and are open to owning more if the price declines
The stock pays a dividend, offering additional income while you wait
You want to collect premium from both the call and the put at once
You’re comfortable with temporary drawdowns and want to reduce your average cost per share
The P&L graph of a classic covered straddle will look like this:
Unlike the standard covered call, which caps upside and offers a limited downside buffer, the covered straddle boosts income potential right away. Yes, the risk is higher if the stock drops, but if you’re holding long term, the additional 100 shares can be acquired at a deeply discounted effective price thanks to the combined premiums.
When This Strategy Works Best
The covered straddle tends to work best under specific conditions:
Neutral to slightly bullish market outlook
High implied volatility (to maximize the premium received)
High-quality, dividend-paying stocks you’re willing to hold, and potentially double your position in if assigned
A longer-term holding mindset, which supports two key benefits:
You collect dividends while holding the shares
If the stock drops and the put is assigned, your position doubles, so it's preferable this happens only occasionally
Sufficient margin availability to handle potential put assignment
This strategy is especially well-suited for investors using options to accumulate stock over time while reducing their average cost basis and generating steady income from both premiums and dividends.
Risk and Reward Dynamics
Like any strategy, the covered straddle comes with trade-offs. Here's how it plays out under different scenarios:
Importantly, the covered straddle isn’t for traders who need tight risk limits. The downside can compound, especially if you aren’t prepared (or capitalized) to own 200 shares. But if you’re confident in the long-term value of the stock, this strategy may allow you to average in more effectively while maintaining strong premium income along the way.
A Covered Straddle Example on a Dividend-Paying Trade
Let’s walk through a real example of a covered straddle setup on a dividend-paying stock.
In this case, the trade is built on EOG Resources (EOG), a fundamentally strong company that recently received an analyst upgrade and currently pays a dividend yield above 3%. That’s an important factor if you're assigned additional shares, since dividend income helps offset downside pressure over time.
The position is structured as follows:
Buy 100 shares of EOG at $117.88
Sell 1 call at the $105 strike (expiring in 4 months)
Sell 1 put at the same $105 strike and expiration
Notice that you could also want to open this position with an ATM straddle. This choice would normally give you a better return, but a lower profit probability.
This creates a classic covered straddle, where both short options sit at the same strike and date, and the trader is positioned to benefit if the stock remains near that level over time.
Your P&L profile would look like this:
In terms of profitability, take a look at a couple of numbers:
Max profit: $652
Percentage return: 8.71% for ~4 months (based on the total $1,940 premium collected - $1,630 from the call bid and $310 from the put bid - divided by the $22,288 capital at risk, which includes owning 100 shares at $117.88 and potential assignment of 100 more at the $105 strike). Also, keep in mind that EOG currently offers a 3.2% dividend yield.
Implied probability of profit: 83% (based on current option pricing)
Here’s why this trade stands out:
You collect over $19 (times 100) in total premium across both options
You benefit from time decay on both legs
If assigned, the second 100 shares would be purchased near $105 minus the premium, significantly lowering your average cost basis (your cost would decrease from the current $117.88 to $101.74)
The dividend yield > 3% supports long-term holding if assignment occurs
This setup gives you strong income potential with a high probability of success, while also positioning you to average into a quality stock if prices dip. The breakeven point is meaningfully below current market levels, and the downside is offset in part by premium income and dividends, making it a solid candidate for patient investors with a long-term horizon.
How to Scan for Covered Straddles in Option Samurai
You can find covered straddle trades in two ways:
Build your own scan:
Go to the Custom Strategy builder, add a stock leg, and add two option legs, one for the short call and one for the short put, using the same strike and expiration.
You can add several filters, such as
Dividend yield greater than 3% to ensure additional income while holding the stock
Beta below 1.2 to focus on lower-volatility stocks
Analyst recommendation up to Hold to avoid bearish sentiment
IV Rank above 50 to maximize premium collected
Bid-ask spread under $1 and below 5% to ensure liquidity
… and more!
Use our predefined scan: this is built specifically for the covered straddle strategy, targeting high-quality stocks with strong premiums and long-term potential. You can take it as we created it, duplicate it and create your own version, or simply take inspiration from some of our filters to build your own covered straddle scan. Refer to the predefined scan link at the bottom of the article to try it out.
Once your structure is in place, you can apply filters to fit your risk profile, income goals, or margin requirements. Our platform lets you simulate different price paths, compare risk-reward outcomes, and evaluate trade quality across multiple scenarios.
Read More
Our blog article on the covered straddle strategy (Covered Straddle - How It Works and When to Use It)
Our predefined scan on covered straddles (or “wheel on steroids,” as you may call it) (Wheel on Steroids: Long-Term Covered Straddle Picks on Good Dividend-Paying Companies)
Go to the scanner to try it yourself
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