Comparision (STOCK REPAIR
VS SHORT CALL BUTTERFLY)
Compare Strategies
STOCK REPAIR
SHORT CALL BUTTERFLY
About Strategy
Stock Repair Option Strategy
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 opposite of the Long Call Butterfly Strategy, a trader expects the market to remain range bound in Long Call Butterfly, but here he expects the market to move beyond strike boundaries in Short Call Butterfly. If the trader is bullish on the market’s volatility, he will implement this strategy. Here also there should be equal distance between the ..
Lower Break-even = Lower Strike Price + Net Premium, Upper Break-even = Higher Strike Price - Net Premium
STOCK REPAIR Vs SHORT CALL BUTTERFLY - When & How to use ?
STOCK REPAIR
SHORT CALL BUTTERFLY
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 meant for special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc.
Action
Buy 1 ATM Call, Sell 2 OTM Calls
Buy 2 ATM Call, Sell 1 ITM Call, Sell 1 OTM Call
Breakeven Point
Lower Break-even = Lower Strike Price + Net Premium, Upper Break-even = Higher Strike Price - Net Premium
STOCK REPAIR Vs SHORT CALL BUTTERFLY - Risk & Reward
STOCK REPAIR
SHORT CALL BUTTERFLY
Maximum Profit Scenario
The profit is limited to the net premium received.
Maximum Loss Scenario
Higher strike price- Lower Strike Price - Net Premium
Risk
Limited
Limited
Reward
Unlimited
Limited
STOCK REPAIR Vs SHORT CALL BUTTERFLY - Strategy Pros & Cons
STOCK REPAIR
SHORT CALL BUTTERFLY
Similar Strategies
Long Straddle, Long Call Butterfly
Disadvantage
• Management required with all the positions. • Additional loss due to continuous decline in shares as downside risk remains unchanged.
• Limited rewards, usually offer smaller return. • Profitability depends on the significant movement of stocks and options prices.
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.
• Even if the market is highly volatile, the risk exposure remains limited. • Without any extra investment, you can receive your premium. • Able to book profits even when the price movement cannot be predicted.
