---
description: "A bullish income strategy augmenting a covered call (short call at K) by also writing an OTM put at strike K' < K, increasing income with a wider profit zone than a covered short straddle."
tags: [options, income, bullish, covered, strangle]
---

# Covered Short Strangle

**Section**: 2.33 | **Asset Class**: Options | **Type**: Income

## Overview
The covered short strangle amounts to augmenting a covered call by writing an OTM put option with strike K' (K' < K) and the same TTM as the sold call option (whose strike is K), thereby increasing the income. The trader's outlook is bullish.

## Construction
- Buy 1 share of stock at S0
- Sell 1 call option at strike K
- Sell 1 OTM put option at strike K' (K' < K, same expiry)

Net credit: C (total premium from both short options)

## Payoff Profile
f_T = S_T - S0 - (S_T - K)+ - (K' - S_T)+ + C

- Max profit: P_max = K - S0 + C  (if S_T >= K at expiry; call in money, put expires worthless)
- Max loss: L_max = S0 + K' - C  (if stock goes to zero; put assigned at K', full stock loss)

## Key Conditions / Signals
- Bullish to neutral; expects stock to remain above K' and ideally above K
- Lower downside risk than covered short straddle (OTM put vs. ATM put)
- The OTM put provides a wider profit zone on the downside at the cost of lower premium collected

## Notes
The short OTM put at K' creates downside risk below K', but less immediate than in the covered short straddle (where the put is ATM). The maximum loss is reduced compared to the covered short straddle because K' < K.