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.
When a trader is moderately bearish on the market he can implement this strategy. Bear-Put-Spread involves buying of ITM Put Option and selling of an OTM Put Option. If prices fall, the ITM Put option starts making profits and the OTM Put option also adds to profit at a certain extent if the expiry price stays above the OTM strike. However, if it falls below the OTM ..
STOCK REPAIR Vs BEAR PUT SPREAD - When & How to use ?
STOCK REPAIR
BEAR PUT SPREAD
Market View
Bullish
Bearish
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.
The bear call spread options strategy is used when you are bearish in market view. The strategy minimizes your risk in the event of prime movements going against your expectations.
Action
Buy 1 ATM Call, Sell 2 OTM Calls
Buy ITM Put Option, Sell OTM Put Option
Breakeven Point
Strike Price of Long Put - Net Premium
STOCK REPAIR Vs BEAR PUT SPREAD - Risk & Reward
STOCK REPAIR
BEAR PUT SPREAD
Maximum Profit Scenario
Max Profit = Strike Price of Long Put - Strike Price of Short Put - Net Premium Paid.
Maximum Loss Scenario
Max Loss = Net Premium Paid.
Risk
Limited
Limited
Reward
Unlimited
Limited
STOCK REPAIR Vs BEAR PUT SPREAD - Strategy Pros & Cons
STOCK REPAIR
BEAR PUT SPREAD
Similar Strategies
Bear Call Spread, Bull Call Spread
Disadvantage
• Management required with all the positions. • Additional loss due to continuous decline in shares as downside risk remains unchanged.
• Limited profit. • Early assignment risk.
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.
• If the strike price, expiration date or underlying stocks are rightly chosen then risk of losses would be limited to the net premium paid. • This strategy works well in declining markets. • Limited risk.
