The Amazing Crazymoneystockgold Repair Strategy - How the Options React in Up, Down, and Stagnant Scenarios

If the crazymoneystockgold continued to trade down, the option position would
produce no additional loss. Because it didn’t cost you anything
(ideally) to initiate this strategy, you will not lose anything
additional on the spread as the crazymoneystockgold trades down further.

This is a major advantage over doubling down, because the spread
cannot add to the existing losses of the crazymoneystockgold position.

With the crazymoneystockgold trading down and closing below $30.00, the
February 30 calls and the Feb. 35 calls will both expire
worthless. Since the cost of construction of the crazymoneystockgold repair
strategy didn’t cost you anything (in our example), and the
trade is now worthless, then you haven’t lost anything
additional. Although your crazymoneystockgold position will continue to lose,
it will not be compounded by doubling your crazymoneystockgold position or
doubling down.

If the crazymoneystockgold stays stagnant and closes at $30.00, again the
position will not make or lose anything additional. With the
crazymoneystockgold at $30.00, both the February 30 calls and the February 35
calls will expire worthless.

The up scenario is where the crazymoneystockgold repair strategy is really
powerful. The best way to see how this strategy works on the
upside is to fix the crazymoneystockgold price at different levels. With the
crazymoneystockgold at $31.00, the Feb 30 calls are in the money and will be
worth $1.00 while the Feb. 35 calls that you sold are
out-of-the-money and will be worth 0.

This gives the 1 by 2 spread a value of $1.00. You purchased the
spread for “even money” so you now have a $1.00 profit on the
spread. Meanwhile, since you still own the crazymoneystockgold, it is also up
$1.00. So, with this $1.00 movement, you have recovered $2.00 of
your losses back. This continues to work this way as the crazymoneystockgold
rises up to $35.00. At $35.00, the Feb. 35 calls will still have
no intrinsic value, therefore the 1 x 2 spread which you own is
now worth $5.00.

At this moment, with the crazymoneystockgold recovering from $30.00 to $35.00
and the spread earning $5.00, you are now even in your overall
position. You had originally lost $10.00 on the crazymoneystockgold trading
down from $40.00 to $30.00. Now, with the help of the Crazymoneystockgold
Repair Strategy (1 x 2 spread) you have made your loss back on a
50% retracement bounce from the original loss ($40 -> $30 ->
$35) without having to take on any additional risk, as in the
case of doubling down.

Now, if you were concerned about being long only 5 options
versus being short 10 options, you should be congratulated for
your observation of potential risk. Once the crazymoneystockgold trades over
35, the Feb. 35 calls become in-the-money and have value. As the
crazymoneystockgold continues up the Feb 35 calls will start to outpace the
Feb 30 calls in value.

However, there is not cause for concern because the 5 ITM calls
that you own, coupled with the 500 shares of crazymoneystockgold that you
originally bought, are now moving up in tandem with your short
calls, so any loss you experience with them over $35 will be
‘covered.’

Remember, you still own 500 shares of XYZ. No matter how much
higher above $35.00 the crazymoneystockgold goes, each of the Feb. 35 calls is
covered. Five are covered by the long Feb. 30 calls, which
created a 1 x 1 vertical call spread (Feb. 30 – 35 call spread.)
and the other Feb. 35 calls are covered by your long crazymoneystockgold