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  • Will You Add? - The Amazing Stock Repair Strategy - How the Options React in Up, Down, and Stagnant Scenarios

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    om $30.00 to $35.00
    and the spread earning $5.00, you are now even in your overall
    position. You had originally lost $10.00 on the stock trading
    down from $40.00 to $30.00. Now, with the help of the Stock
    Repair Strategy (1 x 2 spread) you have made your loss back on a
    50% retracement bounce from the original loss ($40 -> $30 ->
    $35) without having to take on any additional risk, as in the
    case of doubling down.

    Now, if you were concerned about being long only 5 options
    versus being short 10 options, you sho
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    Let's look at how the options will react in the three scenarios:
    up, down, and stagnant. Remember, we have entered this trade
    already down $5,000 from the stock purchase.

    If the stock continued to trade down, the option position would
    produce no additional loss. Because it didn’t cost you anything
    (ideally) to initiate this strategy, you will not lose anything
    additional on the spread as the stock trades down further.

    This is a major advantage over doubling down, because the spread
    cannot add to the existing losses of the stock position.

    With the stock trading down and closing below $30.00, the
    February 30 calls and the Feb. 35 calls will both expire
    worthless. Since the cost of construction of the stock repair
    strategy didn’t cost you anything (in our example), and the
    trade is now worthless, then you haven’t lost anything
    additional. Although your stock position will continue to lose,
    it will not be compounded by doubling your stock position or
    doubling down.

    If the stock stays stagnant and closes at $30.00, again the
    position will not make or lose anything additional. With the
    stock at $30.00, both the February 30 calls and the February 35
    calls will expire worthless.

    The up scenario is where the stock repair strategy is really
    powerful. The best way to see how this strategy works on the
    upside is to fix the stock price at different levels. With the
    stock at $31.00, the Feb 30 calls are in the money and will be
    worth $1.00 while the Feb. 35 calls that you sold are
    out-of-the-money and will be worth 0.

    This gives the 1 by 2 spread a value of $1.00. You purchased the
    spread for “even money” so you now have a $1.00 profit on the
    spread. Meanwhile, since you still own the stock, it is also up
    $1.00. So, with this $1.00 movement, you have recovered $2.00 of
    your losses back. This continues to work this way as the stock
    rises up to $35.00. At $35.00, the Feb. 35 calls will still have
    no intrinsic value, therefore the 1 x 2 spread which you own is
    now worth $5.00.

    At this moment, with the stock recovering from $30.00 to $35.00
    and the spread earning $5.00, you are now even in your overall
    position. You had originally lost $10.00 on the stock trading
    down from $40.00 to $30.00. Now, with the help of the Stock
    Repair Strategy (1 x 2 spread) you have made your loss back on a
    50% retracement bounce from the original loss ($40 -> $30 ->
    $35) without having to take on any additional risk, as in the
    case of doubling down.

    Now, if you were concerned about being long only 5 options
    versus being short 10 options, you shou
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    g losses of the stock position.

    With the stock trading down and closing below $30.00, the
    February 30 calls and the Feb. 35 calls will both expire
    worthless. Since the cost of construction of the stock repair
    strategy didn’t cost you anything (in our example), and the
    trade is now worthless, then you haven’t lost anything
    additional. Although your stock position will continue to lose,
    it will not be compounded by doubling your stock position or
    doubling down.

    If the stock stays stagnant and closes at $30.00, again the
    position will not make or lose anything additional. With the
    stock at $30.00, both the February 30 calls and the February 35
    calls will expire worthless.

    The up scenario is where the stock repair strategy is really
    powerful. The best way to see how this strategy works on the
    upside is to fix the stock price at different levels. With the
    stock at $31.00, the Feb 30 calls are in the money and will be
    worth $1.00 while the Feb. 35 calls that you sold are
    out-of-the-money and will be worth 0.

    This gives the 1 by 2 spread a value of $1.00. You purchased the
    spread for “even money” so you now have a $1.00 profit on the
    spread. Meanwhile, since you still own the stock, it is also up
    $1.00. So, with this $1.00 movement, you have recovered $2.00 of
    your losses back. This continues to work this way as the stock
    rises up to $35.00. At $35.00, the Feb. 35 calls will still have
    no intrinsic value, therefore the 1 x 2 spread which you own is
    now worth $5.00.

    At this moment, with the stock recovering from $30.00 to $35.00
    and the spread earning $5.00, you are now even in your overall
    position. You had originally lost $10.00 on the stock trading
    down from $40.00 to $30.00. Now, with the help of the Stock
    Repair Strategy (1 x 2 spread) you have made your loss back on a
    50% retracement bounce from the original loss ($40 -> $30 ->
    $35) without having to take on any additional risk, as in the
    case of doubling down.

    Now, if you were concerned about being long only 5 options
    versus being short 10 options, you sho
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    30.00, again the
    position will not make or lose anything additional. With the
    stock at $30.00, both the February 30 calls and the February 35
    calls will expire worthless.

    The up scenario is where the stock repair strategy is really
    powerful. The best way to see how this strategy works on the
    upside is to fix the stock price at different levels. With the
    stock at $31.00, the Feb 30 calls are in the money and will be
    worth $1.00 while the Feb. 35 calls that you sold are
    out-of-the-money and will be worth 0.

    This gives the 1 by 2 spread a value of $1.00. You purchased the
    spread for “even money” so you now have a $1.00 profit on the
    spread. Meanwhile, since you still own the stock, it is also up
    $1.00. So, with this $1.00 movement, you have recovered $2.00 of
    your losses back. This continues to work this way as the stock
    rises up to $35.00. At $35.00, the Feb. 35 calls will still have
    no intrinsic value, therefore the 1 x 2 spread which you own is
    now worth $5.00.

    At this moment, with the stock recovering from $30.00 to $35.00
    and the spread earning $5.00, you are now even in your overall
    position. You had originally lost $10.00 on the stock trading
    down from $40.00 to $30.00. Now, with the help of the Stock
    Repair Strategy (1 x 2 spread) you have made your loss back on a
    50% retracement bounce from the original loss ($40 -> $30 ->
    $35) without having to take on any additional risk, as in the
    case of doubling down.

    Now, if you were concerned about being long only 5 options
    versus being short 10 options, you sho
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    >
    This gives the 1 by 2 spread a value of $1.00. You purchased the
    spread for “even money” so you now have a $1.00 profit on the
    spread. Meanwhile, since you still own the stock, it is also up
    $1.00. So, with this $1.00 movement, you have recovered $2.00 of
    your losses back. This continues to work this way as the stock
    rises up to $35.00. At $35.00, the Feb. 35 calls will still have
    no intrinsic value, therefore the 1 x 2 spread which you own is
    now worth $5.00.

    At this moment, with the stock recovering from $30.00 to $35.00
    and the spread earning $5.00, you are now even in your overall
    position. You had originally lost $10.00 on the stock trading
    down from $40.00 to $30.00. Now, with the help of the Stock
    Repair Strategy (1 x 2 spread) you have made your loss back on a
    50% retracement bounce from the original loss ($40 -> $30 ->
    $35) without having to take on any additional risk, as in the
    case of doubling down.

    Now, if you were concerned about being long only 5 options
    versus being short 10 options, you sho
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    om $30.00 to $35.00
    and the spread earning $5.00, you are now even in your overall
    position. You had originally lost $10.00 on the stock trading
    down from $40.00 to $30.00. Now, with the help of the Stock
    Repair Strategy (1 x 2 spread) you have made your loss back on a
    50% retracement bounce from the original loss ($40 -> $30 ->
    $35) without having to take on any additional risk, as in the
    case of doubling down.

    Now, if you were concerned about being long only 5 options
    versus being short 10 options, you should be congratulated for
    your observation of potential risk. Once the stock trades over
    35, the Feb. 35 calls become in-the-money and have value. As the
    stock continues up the Feb 35 calls will start to outpace the
    Feb 30 calls in value.

    However, there is not cause for concern because the 5 ITM calls
    that you own, coupled with the 500 shares of stock that you
    originally bought, are now moving up in tandem with your short
    calls, so any loss you experience with them over $35 will be
    ‘covered.’

    Remember, you still own 500 shares of XYZ. No matter how much
    higher above $35.00 the stock goes, each of the Feb. 35 calls is
    covered. Five are covered by the long Feb. 30 calls, which
    created a 1 x 1 vertical call spread (Feb. 30 – 35 call spread.)
    and the other Feb. 35 calls are covered by your long stock. You
    own 500 shares and that matches the 10 short Feb. 35 calls
    exactly when coupled with your long Feb 30 calls. This is why
    the exact volume construction we talked about earlier is so
    important.

    Therefore, after the stock trades through $35.00 the positions’
    maximum return is locked.

    HTTP = HTML link (for blogs, profiles,phorums):
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