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A "stock" repair strategy (unless I missed some intermediate quotes) is
generally done for free. In a repair a stock is down about 20% -
30% and your objective is to get to break even without getting any additional
risk or spending any additional $$. Say you bought the stock at $100
and it's currently at $70. You don't expect it to get back to $100
.. but it might have a shot at $85. For every hundred shares you
own you buy a $75 call and sell 2X $85 calls for even money. In essence
every 100 shares becomes a covered write off of one of the $85 calls.
The rest is a 75/85 bull spread. No dollars and no additional risk
(you have capped your upside at $85 on a position twice as large and some
people would view capped upside as opportunity risk). You essentially
buy a 1 x 2 75/85 call back spread for even. For every 1 point move
above $75 you make $2. At $85 you break even. This strategy
is also far better than conventional covered writing except that a covered
write gives you a downside cushion.
Ira Tunik wrote:
What do you mean by a repair strategy? It has
very little to do with price, it has to do with what you want to accomplish
and the least expensive way of doing it. Give an example of the repair
you are thinking about. Ira
JAC1390@xxxxxxx wrote:
What are
some guidelines with regard to amount of premium one should pay if
they are engaging in a repair
strategy?
Thank you in advance,
JAC
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