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.
Strap Strategy is similar to Long Straddle, the only difference is the quantity traded. A trader will buy two Call Options and one Put Options. In this strategy, a trader is very bullish on the market and volatility on upside but wants to hedge himself in case the stock doesn’t perform as per his expectations. This strategy will make more profits compared to long straddle sin ..
Profit Achieved When Price of Underlying > Strike Price of Calls/Puts + (Net Premium Paid/2) OR Price of Underlying < Strike Price of Calls/Puts - Net Premium Paid
Risk Profile
Limited
Max Loss Occurs When Price of Underlying = Strike Price of Calls/Puts
Breakeven Point
Strike Price of Calls/Puts + (Net Premium Paid/2)
STOCK REPAIR Vs STRAP - When & How to use ?
STOCK REPAIR
STRAP
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 used when the investor is bullish on the stock and expects volatility in the near future.
Action
Buy 1 ATM Call, Sell 2 OTM Calls
Buy 2 ATM Call Option, Buy 1 ATM Put Option
Breakeven Point
Strike Price of Calls/Puts + (Net Premium Paid/2)
STOCK REPAIR Vs STRAP - Risk & Reward
STOCK REPAIR
STRAP
Maximum Profit Scenario
UNLIMITED
Maximum Loss Scenario
Net Premium Paid
Risk
Limited
Limited
Reward
Unlimited
Unlimited
STOCK REPAIR Vs STRAP - Strategy Pros & Cons
STOCK REPAIR
STRAP
Similar Strategies
Strip, Short Put Ladder, Short Call Ladder
Disadvantage
• Management required with all the positions. • Additional loss due to continuous decline in shares as downside risk remains unchanged.
• To generate profit, there should be significant change in share price. • Expensive strategy.
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 loss. • If share prices are moving then traders can book unlimited profit. • A trader can still book profit if the underlying falls substantially.
