Stock Repair Strategy is used to cover up for losses made on long stock position. After the long position suffered losses on stock price fall, a trader will implement this strategy in order to bring down the breakeven price and capping his further losses thereby increasing his probability of loss recovery.
A Strangle is similar to Straddle. In Strangle, a trader will purchase one OTM Call Option and one OTM Put Option, of the same expiry date and the same underlying asset. This strategy will reduce the entry cost for trader and it is also cheaper than straddle. A trader will make profits, if the market moves sharply in either direction and gives extra-ordinary returns in the ..
Lower Breakeven Point = Strike Price of Put - Net Premium, Upper Breakeven Point = Strike Price of Call + Net Premium
STOCK REPAIR Vs LONG STRANGLE - When & How to use ?
STOCK REPAIR
LONG STRANGLE
Market View
Bullish
Neutral
When to use?
Stock Repair Strategy is used to cover up for losses made on long stock position. After the long position suffered losses on stock price fall, a trader will implement this strategy in order to bring down the breakeven price and capping his further losses thereby increasing his probability of loss recovery.
This strategy is used in special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc.
Action
Buy 1 ATM Call, Sell 2 OTM Calls
Buy OTM Call Option, Buy OTM Put Option
Breakeven Point
Lower Breakeven Point = Strike Price of Put - Net Premium, Upper Breakeven Point = Strike Price of Call + Net Premium
STOCK REPAIR Vs LONG STRANGLE - Risk & Reward
STOCK REPAIR
LONG STRANGLE
Maximum Profit Scenario
Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid
Maximum Loss Scenario
Max Loss = Net Premium Paid
Risk
Limited
Limited
Reward
Unlimited
Unlimited
STOCK REPAIR Vs LONG STRANGLE - Strategy Pros & Cons
STOCK REPAIR
LONG STRANGLE
Similar Strategies
Long Straddle, Short Strangle
Disadvantage
• Management required with all the positions. • Additional loss due to continuous decline in shares as downside risk remains unchanged.
• Require significant price movement to book profit. • Traders can lose more money if the underlying asset stayed stagnant.
Advantages
• This strategy creates an opportunity to recover losses by lowering our breakeven. • No margin required. • No additional downside risk and costs nothing to put on.
• Able to book profit, no matter if the underlying asset goes in either direction. • Limited loss to the debit paid. • If the underlying asset continues to move in one direction then you can book Unlimited profit .
