Stock Repair Strategy
The shares repair strategy intended to meet fallen in value shares through call warrant. Shares that were purchased something expensive and have suffered a decline, are supported by a call option when re-rise. This option “repair” the “ailing” value of the portfolio Binary Options Australia, which came about through the initially expensive entry price on subsequent price decline. It is explicitly not hedging, but the investor deals with the call option in the originally envisaged towards a rising share price.
The investor has bought a block of shares, for example, the price of 20 euros per share. The price decreases now more or less unexpectedly at 15 euros, but the investor expects that he will rise again in the future. Being, however, its entire share capital has become cheaper by 25 percent, possibly the entry price is not reached again. If that happens, the holder of the shares, the packet probably sell someday. Since he first starts from a renewed rise in price, he buys a call option on its shares, which wins the following rise in value and the initial price fall at least partially offsets again, so repairing the share value.
These events are independent of two other backup options instead:
• The optional hedging against a loss of effective means of put option
• setting a loss limit stops for the shares themselves
Other possibilities would be the (risky) purchase of additional shares that would reduce their starting price, as well as a loss control stop for the call option.
Arrow green approach to the Stock Repair Strategy
The advantage is clearly in very inexpensive balance the downside by a leveraged derivative 24option. If this is additionally provided with a relatively tight stop loss limit, the risk holds for this strategy to be very limited, at least from the perspective of an already taken place price decline. The first impulse of investors often exists therein, the block of shares nachzukaufen but cheaper, but that is expensive and risky. If again the same number of shares as the initial purchase to 20 euros can be ordered at a price of 15 euros, now the starting price is 17,50 Euro, but this entry-level price must not be achieved again.
The shares may also fall further in price, whereby through the replacement has potentiated the risk of loss. A predominant view among traders warns Nachkäufen case of price declines. If the call option be provided only with a leverage of 1:10, one tenth of the initial investment would be enough for a rebound in shares by only 10 percent (while at the same high level of investment in the call option as in the original shares) to eliminate the loss, alternatively would meet one tenth of the investment to have collected the decline when it reaches the price of 17.50. Between these values, everything is possible, both a different weighting of the option as well as another lever, which, however, also implies other risks. Last but not least would probably hold no larger block of shares, because he needed cash for other values of the investor. The call option is actually the cheapest solution as Stock Repair.
Arrow green advantages and disadvantages of Stock Repair Strategy
The disadvantage is, as always, the speculative nature of the strategy, because the course may actually decline even further, resulting in an increased loss because the purchased call option now also losing to the shares value. This disadvantage adheres depending on the size and leverage of the option is limited.
The Stock Repair Strategy will ultimately be applied only if the investor is convinced in principle the potential of its shares and only want to offset price declines. This disadvantage are the way towards much higher profit possibilities, if the stock not only reached its initial value but exceeds far. The call option wins all the time. From this perspective, a Stock Repair Strategy are classified as very useful, what is not to say of all option strategies Banc de Binary.