Too often, traders jump into the options game with little or no understanding of how many options strategies are available to limit their risk and maximize return. With a little bit of effort, however, lkng can learn how to take advantage of the flexibility cal full power of options as a trading vehicle. Successful options trading is not about being correct most the time, but about being calo good repair mechanic.
When things go wrong, as they often do, you need the proper tools and techniques to get your strategy back on the profit track. Here we demonstrate some basic repair strategies aimed at increasing profit potential on a long call position that has experienced a quick unrealized loss.Defense Is Just as Important as OffenseRepair strategies are an integral part of any trading plan. Too often, though, beginner options traders give little thought to potential follow-up adjustmentIn mathematical finance, the Greeks are the quantities representing the sensitivity of the price of derivatives such as options to a change in underlying parameters on which the value of an instrument or portfolio of financial instruments is dependent.
The name is recover because the most common of these sensitivities shrt denoted by Greek letters (as are some other finance option long short put call 2 recovery. Stock Repair Strategy ConstructionBuy 1 ATM CallSell 2 OTM CallsThe most straightforward way to try to rescue a losing long stock positionis to hold on to the shares and hope that the stock price return to the originalpurchase price.
However, this approach may take a long time (if ever). To increase the likelihood of achieving breakeven, another common strategy is todouble down and reduce the average purchase price. This method reduces the breakevenprice caall there is a need to pump in additional funds, hence increasing downsiderisk.The stock repair strategy,The reverse (short) iron condor is a limited risk, limited profit trading strategythat is designed to earn a profit when theunderlying stock price makes a sharp move in either direction.
Reverse Iron Condor ConstructionBuy optiln OTM PutSell 1 OTM Put rfcovery Strike)Buy 1 OTM CallSell 1 OTM Call (Higher Strike)To setup a reverse iron condor, the options trader buys a lower strikeout-of-the-money put, sells an even lower strike out-of-the-money put, buysa higher strike out-of-the-money calland sells another even higher strike out-of-the-money call.
A net debit is taken to enter this trade. Limited Profit PotentialMaximum gain for the reverse iron condor strategy is limited but significantly higher than the maximum possible loss.It is attained when the underlying stock price drops below the strike price of theshort put or rise above or equal to the higher strike price of the short call. ling IneitherShort Naked PutA Short Naked Put is a bullish strategy that is executed by simply selling a put option.
Short 2 long call put recovery option