Monday, March 30th, 2015

Option strategy to use for stock repair !!!?

hello, I have 200 shares of Morgan Stanley, which I bought around 41-42. now its trading @ $ 20. . What values of repair strategy should be used (I mean, how do I buy and sell call and put back my loss) please help me cabogracias

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6 Responses to “Option strategy to use for stock repair !!!?”
  1. bow8810 says:

    at this point in time take a loss or wait 20 years

  2. arael says:

    as we say in the invest world if the tide is high you ride it but don’t you ever sell out when it’s’ bear time you got to wait for the bulls to come give it around a month or so and see what action will you take.
    i say don’t bail out all your stocks.

  3. Daniel P says:

    at this point i don’t think you can. you’ve lost 50% of your original value. stock options can’t help you recover that. selling calls or buying puts should have been your original strategy from jump street. next time use a stop loss to prevent such large losses.

  4. zman492 says:

    The classic option strategy for stock repair would be to buy two calls with a $30 strike and sell four calls with a $35 strike and the same expiration date. Usually this is done at no cost or for a credit. In your case, that will mean using an expiration date of January, 2010 or January 2011.

    The advantage of the plan is that the stock only has to reach $35 for you to break even. The disadvantage is that you do not benefit from any increase in the stock price beyond $35.

    For a detailed discussion of this strategy see

    http://www.cboe.com/Strategies/EquityOptions/StockRepairs/Part1.aspx

    —–

    I want to add that I am not recommending the stock repair strategy. I am a firm believer that what I paid for a stock should have nothing to do with how I manage the stock position at a later time. I believe “trying to break even” or “trying to recover a loss” is a poor strategy. I believe that if I bought a stock for $40 per share and the stock is now at $20 per share I have already lost $20 per share, even if I have not sold the stock yet. I would look to see why the stock dropped 50% from the price I paid for it. If I cannot figure out why it dropped, I need to look further because I am missing something. Then I need to decide if I think the stock is a good deal at its current price. If not, I should sell it. If it is a good deal, I would be reluctant to limit my potential profit.

    You cannot use any strategy to change what has happened in the past. You need to focus on the future instead of the past.

  5. Thor says:

    “repair”? I am not sure there is any such thing as “repair”.

    Sell your losers and buy winners is the more sensible recommendation.

    “Don’t fall in love with a stock”.

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