Stock Repair Strategy

The stock repair strategy is used as an alternative strategy to recover from a loss after a long stock position has suffered from a drop in the stock price. This strategy involves the implementation of a call ratio spread (buy 1 ATM Call and sell 2 OTM Calls) to reduce the break-even price of a losing long stock position, thereby increasing the chance of fully recovering from the loss. This strategy should be implemented by traders who want to average their position by buying additional stocks in cash when the underlying stock price is falling. Instead of buying additional stock in cash which may take a long time, the trader can apply stock repair strategy.