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When doing a covered straddle in options trading, it involves selling put and call options when entering the straddle. But there is no way of guaranteeing that your options won't be assigned before you reach your target prices. So is that just accounted for in the risk of the straddle before a decision is made, or am I missing something? It seems to me like that's an awfully risky move.

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Yes, that's the risk.

If the stock is bouncing around a lot your options could get assigned. If it heads south you now are the proud owner of more of a falling stock.

It's good that you're looking to understand the risks of an investment method. That's important no matter what the method is.

  • That's kinda what I thought. I'm in IT at a financial company and being a fresh college grad I don't know much about the industry. So trying to get my head around all the stuff is kinda hard. Thanks :) – Matt Phillips Jun 26 '11 at 6:05
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    You're welcome. Here was my crib sheet for answering your question: voptions.com/bullish_strategies_covered_sraddle.htm I just did a Google search for "covered straddle" – mbhunter Jun 26 '11 at 6:16

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