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.
A trader is bullish in nature for short term, but also fearful about the downside risk associated with it. Here, a trader wants to hold an underlying asset either in physical form like in case of commodities or demat (electronic) form in case of stocks. But he is always exposed to downside risk and in order to mitigate his losses, ..
When Price of Underlying > Purchase Price of Underlying + Premium Paid
Risk Profile
Limited
Limited (Maximum loss happens when the price of instrument move above from the strike price of put)
Breakeven Point
Underlying Price + Put Premium
STOCK REPAIR Vs SYNTHETIC LONG CALL - When & How to use ?
STOCK REPAIR
SYNTHETIC LONG CALL
Market View
Bullish
Bullish
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.
A trader is bullish in nature for short term, but also fearful about the downside risk associated with it.
Action
Buy 1 ATM Call, Sell 2 OTM Calls
Buy 1 ATM Put or OTM Put
Breakeven Point
Underlying Price + Put Premium
STOCK REPAIR Vs SYNTHETIC LONG CALL - Risk & Reward
STOCK REPAIR
SYNTHETIC LONG CALL
Maximum Profit Scenario
Current Price - Purchase Price - Premium Paid
Maximum Loss Scenario
Premium Paid
Risk
Limited
Limited
Reward
Unlimited
Unlimited
STOCK REPAIR Vs SYNTHETIC LONG CALL - Strategy Pros & Cons
STOCK REPAIR
SYNTHETIC LONG CALL
Similar Strategies
Protective Put, Long Call
Disadvantage
• Management required with all the positions. • Additional loss due to continuous decline in shares as downside risk remains unchanged.
•Chances of loss if the underlying goes down. •Incur losses if option is exercised.
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.
•Limited risk, unlimited profit. •Protection to your long-term holdings. • Limited loss to the to the premium paid for Put option.
