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.
Strip Strategy is the opposite of Strap Strategy. When a trader is bearish on the market and bullish on volatility then he will implement this strategy by buying two ATM Put Options & one ATM Call Option, of the same strike price, expiry date & underlying asset. If the prices move downwards then this strategy will make more profits compared to short straddle because of the ..
Upper Breakeven Point = Strike Price of Calls/Puts + Net Premium Paid, Lower Breakeven Point = Strike Price of Calls/Puts - (Net Premium Paid/2)
STOCK REPAIR Vs STRIP - When & How to use ?
STOCK REPAIR
STRIP
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.
When a trader is bearish on the market and bullish on volatility then he will implement this strategy.
Action
Buy 1 ATM Call, Sell 2 OTM Calls
Buy 1 ATM Call, Buy 2 ATM Puts
Breakeven Point
Upper Breakeven Point = Strike Price of Calls/Puts + Net Premium Paid, Lower Breakeven Point = Strike Price of Calls/Puts - (Net Premium Paid/2)
STOCK REPAIR Vs STRIP - Risk & Reward
STOCK REPAIR
STRIP
Maximum Profit Scenario
Price of Underlying - Strike Price of Calls - Net Premium Paid OR 2 x (Strike Price of Puts - Price of Underlying) - Net Premium Paid
Maximum Loss Scenario
Net Premium Paid + Commissions Paid
Risk
Limited
Limited
Reward
Unlimited
Unlimited
STOCK REPAIR Vs STRIP - Strategy Pros & Cons
STOCK REPAIR
STRIP
Similar Strategies
Strap, Short Put Ladder
Disadvantage
• Management required with all the positions. • Additional loss due to continuous decline in shares as downside risk remains unchanged.
Expensive., The share price must change significantly to generate profit., High Bid/Offer spread can have a negative influence on the position.
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.
Profit is generated when the share price changes in any direction., Limited loss., The profit is potentially unlimited when share prices are moving.
