Compare Strategies
| STOCK REPAIR | PROTECTIVE PUT | |
|---|---|---|
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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 |
Protective Put Option StrategyProtective Put Strategy is a hedging strategy where trader guards himself from the downside risk. This strategy is adopted when a trader is long on the underlying asset but skeptical of the downside. He will buy one ATM Put Option to hedge his position. Now, if the underlying asset moves either up or down, the trader is in a safe position.
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STOCK REPAIR Vs PROTECTIVE PUT - Details
| STOCK REPAIR | PROTECTIVE PUT | |
|---|---|---|
| Market View | Bullish | Bullish |
| Type (CE/PE) | CE (Call Option) | PE (Put Option) |
| Number Of Positions | 3 | 1 |
| Strategy Level | Beginners | Beginners |
| Reward Profile | Unlimited | Unlimited |
| Risk Profile | Limited | Limited |
| Breakeven Point | Purchase Price of Underlying + Premium Paid |
STOCK REPAIR Vs PROTECTIVE PUT - When & How to use ?
| STOCK REPAIR | PROTECTIVE PUT | |
|---|---|---|
| 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. | This strategy is adopted when a trader is long on the underlying asset but skeptical of the downside. |
| Action | Buy 1 ATM Call, Sell 2 OTM Calls | Buy 1 ATM Put |
| Breakeven Point | Purchase Price of Underlying + Premium Paid |
STOCK REPAIR Vs PROTECTIVE PUT - Risk & Reward
| STOCK REPAIR | PROTECTIVE PUT | |
|---|---|---|
| Maximum Profit Scenario | Price of Underlying - Purchase Price of Underlying - Premium Paid | |
| Maximum Loss Scenario | Premium Paid + Purchase Price of Underlying - Put Strike + Commissions Paid | |
| Risk | Limited | Limited |
| Reward | Unlimited | Unlimited |
STOCK REPAIR Vs PROTECTIVE PUT - Strategy Pros & Cons
| STOCK REPAIR | PROTECTIVE PUT | |
|---|---|---|
| Similar Strategies | Long Call, Call Backspread | |
| Disadvantage | • Management required with all the positions. • Additional loss due to continuous decline in shares as downside risk remains unchanged. | • Value of protective put position decreases as time passes • Holding period of the protective put can be affected by the timing as a result tax rate on the profit or loss from the stock can be affected. |
| 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 profit due to indefinitely rise in the underlying stock price . • This strategy allows you to hold on to your stocks while insuring against losses. • Hedging strategy, trader can guard himself from the downside risk. |