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 applied when trader goes long on the underlying asset i.e. he buys the stock in cash market. He has a bullish view and expects the market to rise in the near future, but simultaneously has the fear of downward movement of the markets. In order to cover his position from vulnerabilities he buys one ATM Put Option of the same underlying asset. Here, a trader wi ..
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 work when the investor goes long in any stock. He expects the rise in market in future.
Action
Buy 1 ATM Call, Sell 2 OTM Calls
Buy 250 XYZ Shares, Buy 1 ATM Put Option
Breakeven Point
Purchase Price of Underlying + Premium Paid
STOCK REPAIR Vs MARRIED PUT - Risk & Reward
STOCK REPAIR
MARRIED PUT
Maximum Profit Scenario
Profit = Price of Underlying - Purchase Price of Underlying - Premium Paid
Maximum Loss Scenario
Max Loss = Premium Paid + Commissions Paid
Risk
Limited
Limited
Reward
Unlimited
Unlimited
STOCK REPAIR Vs MARRIED PUT - Strategy Pros & Cons
STOCK REPAIR
MARRIED PUT
Similar Strategies
Long Call
Disadvantage
• Management required with all the positions. • Additional loss due to continuous decline in shares as downside risk remains unchanged.
Cost of the put options eats into profit margin.
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.
