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.
Straddle is neither bullish nor bearish strategy; it is a market neutral strategy. Here a trader wishes to take advantage of the volatility in the market. This strategy involves buying of one Call option and one Put option of the same strike price, same expiry date and of the same underlying asset. Now a trader is bound to make profits once stock moves in either direc ..
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call + Net Premium
STOCK REPAIR Vs LONG STRADDLE - When & How to use ?
STOCK REPAIR
LONG STRADDLE
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 options strategy is work well when and investor market view is bearish. 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 Call Option, Buy Put Option
Breakeven Point
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call + Net Premium
STOCK REPAIR Vs LONG STRADDLE - Risk & Reward
STOCK REPAIR
LONG STRADDLE
Maximum Profit Scenario
Max profit is achieved when at one option is exercised.
Maximum Loss Scenario
Maximum Loss = Net Premium Paid
Risk
Limited
Limited
Reward
Unlimited
Unlimited
STOCK REPAIR Vs LONG STRADDLE - Strategy Pros & Cons
STOCK REPAIR
LONG STRADDLE
Similar Strategies
Bear Put Spread
Disadvantage
• Management required with all the positions. • Additional loss due to continuous decline in shares as downside risk remains unchanged.
• There should be continuous movement of the stock and options price for this strategy to be profitable. • Time decay hurts long option if the strike price, expiration date or underlying stock are badly chosen.
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.
• Unlimited potential beyond the breakeven point in either direction . • Book your profit from highly volatile stocks without determining the direction. • Limited risk, more profit.
