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.
Collar Strategy is an extension to Covered Call Strategy. A trader, who is bullish in nature but has a very low risk appetite and wants to mitigate his risk will implement the Collar Strategy. Collar involves buying of stock in either Cash/Futures Market, buying an ATM Put Option & selling an OTM Call Option. The expiry dates of the op ..
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.
It should be used only in case where trader is certain about the bearish market view.
Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received
Maximum Loss Scenario
Purchase Price of Underlying - Strike Price of Long Put - Net Premium Received
Risk
Limited
Limited
Reward
Unlimited
Limited
STOCK REPAIR Vs THE COLLAR - Strategy Pros & Cons
STOCK REPAIR
THE COLLAR
Similar Strategies
Call Spread, Bull Put Spread
Disadvantage
• Management required with all the positions. • Additional loss due to continuous decline in shares as downside risk remains unchanged.
• Limited profit. • A trader can book more profit without this strategy if the prices goes high.
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.
• This strategy protects the losses on underlying asset. • Risk gets limited if the price of the stocks goes down. • Trader can get ownership benefits life dividend and voting rights.
