Ideally, with these positions, you just want to break even and free up your cash to put into a better investment. Fortunately, the stock repair strategy lets you do just that. OK, get to the dang strategy already!
For every shares of a losing stock you own:. Did you get all that? It's a lot to process, I know, so let's walk through an example. It's a wash. All options expire, and you've only lost on commissions. You can try again. Unfortunately, the underlying stock's value has fallen even further. You can use the strategy again.
Stock Repair Strategy | Help with Stock Options
Congratulations, you've broken even. You miss out on the stock's unexpected upside, but your trades still cancel each other out, and you still break even. It's important to note that the repair strategy isn't risk-free. As you can see, it does not protect you from additional downside in the shares you already own -- nor does it offer you a profit above your break-even price.
The return calculations may or may not include any commissions that may be paid in connection with the option strategies.
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After server identifies the option strategies with the desired characteristics, which may be those with a positive return, it formats and transmits data relevant to the various option strategies to the user for review. The particular data items that are presented for each of the types of stock option strategies are depicted in FIGS. As shown in the Figures, the various different types of option strategies are listed together and the returns and risks of each strategy are identified. This is in contradistinction to prior systems that provided only for viewing options and different types of strategies separately and not together.
The ability to view the various strategies together greatly facilitates an investor's decision as to which of several different option strategies to pursue. Another feature of the exemplary system allows an investor to view the effect of a movement in the price of the underlying stock on the various option strategies. Thus, if an investor believes the price of the underlying stock is going to increase or decrease by a certain percentage or dollar amount, the investor can determine which of the various different option strategies will be most effective in capitalizing on the stock movement. An exemplary screen depicting an interface for a user to input an investor's anticipated stock price movement is shown in FIG.
As shown in FIG. In an alternative embodiment, the change in price may be identified in dollars. The data is transmitted to server where it is processed to identify the expected return for instances of various stock option strategies in the case that the stock moves the percentage specified by the investor. The identified change in the price of the stock results in a change in the returns on all of the options as well as the related options strategies. Instances of the various option strategies that result in a positive return are identified by server Thereafter, server formats and transmits the results to the investor.
The data may be transmitted to the investor in a format similar to that depicted in FIGS. According to another aspect of the exemplary systems and methods, users with existing positions in a stock or stock strategy can view and analyze different investing alternatives that are available to them given their existing position. Generally, options as investment securities have a finite life in the market. Each option contract will eventually come to an expiration data when the owner of that contract will be obligated to either take action on the terms of the contract, or let it expire without action.
Since there is a finite time period involved, and because of the market conditions that surround equity option trading, it is important for the investor to keep abreast of what the position is now and can be in the future and possibly change the position to seek less risk or more profit. The exemplary systems and methods disclosed herein locate potential future trading positions.
Option Repair Strategy – How to repair a losing stock position
The post-position feature of the exemplary system allows an investor to obtain an overview of the current value of a multi-security position, the value of that position at expiration if all other factors remain constant , and potential changes to that position. An investor may wish to obtain a different position for any number of reasons including, for example, the investor's contract may be coming due, or the investor wishes to obtain more profit, or the investor's risk tolerance has changed.
As shown, at step , server receives data regarding an investor's existing option position. For example, and as is depicted in FIG. As depicted in FIG. For example, if at step a covered call was identified, at step , the current trading price of the stock that is comprised in the covered call strategy and the current trading price of the stock option comprised in the covered call are retrieved.
If a bear-put debit spread, bear-call credit spread, or bull-put credit spread were identified at step , at step the current price of the long and short options comprised in the strategy are retrieved. At step , server determines the liquidation value of the particular stock option strategy. In other words, server determines the credit or debit that would result if the position was closed out using present market values.
In other words, server derives the likely value of the strategy if it is held until expiration. For example, and as is shown in FIG. For a bear-put debit spread strategy, and as depicted in FIG. The original net debit is the maximum loss from the position. For a bear-call credit spread, and as is depicted in FIG. For a bull-put credit spreads, and as is depicted in FIG. Once the options go in the money profit is lost. The maximum loss occurs when the stock moves under the lowest strike price. This maximum loss is calculated as the difference in the strike prices minus any net credit originally obtained.
For a bull-call debit spread strategy, determining the expiration value may comprise determining the following: whether the short call option that was sold is in the money; if the short option is in the money, determining the expiration value of the spread to be the revenue or cost associated with reversing the position, i. Referring again to FIG.
More particularly, the system searches for option investment opportunities to increase net profit given the existing investment position. For investors with a covered call position, the exemplary system determines if opportunities exist to purchase a stock option to close the existing call option that was sold, and to sell another call option.
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Server searches for call options that satisfy these, or other appropriate criteria, and that result in a net credit or a slight net debit. For each roll out opportunity that is identified, and as is depicted in FIG. For investors with bear-put-debit spread positions, at step , server determines if there are bear-call credit spread opportunities for the same underlying stock that result in a positive net credit or a minimal, e.
If so, server derives data regarding the potential bear-call credit spread opportunity for review by the investor. For example, and as depicted in FIG. For investors with bear-call credit spread positions, at step , server determines if there are bull-put credit spread opportunities for the same underlying stock that result in a positive net credit or a small, e.
If so, server derives data regarding the potential bull-put credit spread opportunity for review by the investor. For investors with bull-put credit positions, at step , server determines if there are bear-call credit spread opportunities for the same underlying stock that result in a positive net credit or a minimal, e. For example, server reviews each position the particular investor has previously taken to determine if a position may have involved the same stock that underlies the option strategy.
Any prior investments involving the underlying stock are compiled into a list for review by the investor. At step , the data collected and derived at steps through are transmitted to the user that made the request for potential trade opportunities. Specifically, the data may be transmitted using screens such as are depicted in FIGS. Thus, exemplary systems and methods have been disclosed that allow investors with established positions to search for and analyze investment opportunities given their existing position.
The exemplary systems and methods derive and present the likely results of liquidating the investor's current position or holding the investor's position until expiration. Furthermore, the exemplary systems and methods derive suggested investment opportunities that result in a positive net credit. While the exemplary systems and methods have been described in connection with covered calls, bear-put debit spreads, bear-call credit spreads, and bull put credit spreads, the systems and methods may be applied to other types of option strategies as well including, for example, covered puts, collars, and calendar LEAP spreads.
Furthermore, while specific roll-out strategies have been discussed in connection with particular existing strategies, e. The exemplary systems and methods further provide the capability to identify opportunities to minimize a potential loss on a stock. However, it is not readily determined which stock repair strategies are available and the relative strengths of those stock repair strategies.
Likewise, it is not readily determined which potential stock repair strategies can be accomplished for little or no additional costs. The exemplary systems and methods disclosed herein provide functionality to assist investors in identifying these stock repair opportunities.
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As shown, at step , server receives a request to identify stock repair opportunities. The request may be formatted by a user employing a screen such as that depicted in FIG. Generally, the request includes an identification of a stock, the cost per share that was paid for the stock, and the number of shares that are held.
At step , server processes the request to identify available stock repair strategies for the identified stock as described below in connection with FIG. Generally, server processes the request to identify stock option repair strategies that can be accomplished with little or no additional costs.
At step , server transmits data relating to various stock repair strategies that are available to the user. Furthermore, for each stock repair strategy, the data that may be retrieved and transmitted for display may comprise the following: the target month for the repair which is the month the options to be used in the repair expire; the lowest stock cost which is the lowest stock price at which the spread is operative; the highest stock cost which is the highest stock price at which the strategy is operative; the strike price of the purchased call option; the strike price of the sell option; the net credit or debit resulting from the purchase and sale of the call options; and the break even dollar amount which represents the value the underlying stock should be at in order to break even with the proposed stock repair strategy.
Upon receiving a listing of available stock strategies such as is depicted in FIG. Accordingly, at step , server determines if a request for additional information regarding a particular strategy has been received. If not, server continues to monitor for the receipt of such a request.