Compare Strategies
| STOCK REPAIR | SHORT GUTS | |
|---|---|---|
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| About Strategy |
Stock Repair Option StrategyStock 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. Suppose Mr. X has |
Short Guts Option StrategyThis strategy is implemented by a trader when he is neutral on the movements and bearish on volatility i.e. he expects the stock to be range bound in the near future. This strategy involves sale of 1 ITM Call Option and 1 ITM Put Option. This strategy can be called as Credit Spread since his account is credited at the time of entering in the positions. < .. |
STOCK REPAIR Vs SHORT GUTS - Details
| STOCK REPAIR | SHORT GUTS | |
|---|---|---|
| Market View | Bullish | Neutral |
| Type (CE/PE) | CE (Call Option) | CE (Call Option) + PE (Put Option) |
| Number Of Positions | 3 | 2 |
| Strategy Level | Beginners | Beginners |
| Reward Profile | Unlimited | Limited |
| Risk Profile | Limited | Unlimited |
| Breakeven Point | Upper Breakeven Point = Net Premium Received + Strike Price of Short Call, Lower Breakeven Point = Strike Price of Short Put - Net Premium Received |
STOCK REPAIR Vs SHORT GUTS - When & How to use ?
| STOCK REPAIR | SHORT GUTS | |
|---|---|---|
| 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 implemented by a trader when he is neutral on the movements and bearish on volatility i.e. he expects the stock to be range bound in the near future. |
| Action | Buy 1 ATM Call, Sell 2 OTM Calls | Sell 1 ITM Call, Sell 1 ITM Put |
| Breakeven Point | Upper Breakeven Point = Net Premium Received + Strike Price of Short Call, Lower Breakeven Point = Strike Price of Short Put - Net Premium Received |
STOCK REPAIR Vs SHORT GUTS - Risk & Reward
| STOCK REPAIR | SHORT GUTS | |
|---|---|---|
| Maximum Profit Scenario | Net Premium Received + Strike Price of Short Put - Strike Price of Short Call - Commissions Paid | |
| Maximum Loss Scenario | Price of Underlying - Strike Price of Short Call - Net Premium Received OR Strike Price of Short Put - Price of Underlying - Net Premium Received + Commissions Paid | |
| Risk | Limited | Unlimited |
| Reward | Unlimited | Limited |
STOCK REPAIR Vs SHORT GUTS - Strategy Pros & Cons
| STOCK REPAIR | SHORT GUTS | |
|---|---|---|
| Similar Strategies | Short Strangle (Sell Strangle), Short Straddle (Sell Straddle) | |
| Disadvantage | • Management required with all the positions. • Additional loss due to continuous decline in shares as downside risk remains unchanged. | • Unlimited potential loss if the underlying stock continues to move in one direction. • High margin required. |
| 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. | • Ability to profit even when underlying asset stays stagnant. • You are already paid your full profit the moment the position is put on as this is a credit spread position. • Higher chance of ending in full profit as compared to short strangle or short straddle. |