STOCK REPAIR STRATEGY
Overview
Stock Repair overlays a zero-cost 1×2 call ratio spread on shares trading below your purchase price. It doubles upside participation between today's price and your original cost basis — cutting the distance to break-even in half — without adding new capital. Downside remains identical to owning the shares.
What it does
Between the current price and the short-call strike, the position acts like 200 shares of long stock. The long ATM call adds roughly 100 delta on top of the 100 shares, doubling participation. This cuts the recovery distance in half: instead of needing a $30 rally to break even, you break even with only a $15 move. Above the short-call strike, gains flatten as the two short calls offset the long call and stock gains.
Structure
own 100 shares + buy 1 ATM call + sell 2 OTM calls (at cost basis)
Setup
- 1.Confirm you own at least 100 shares and note your original cost basis.
- 2.Choose an expiration 45–75 days out with adequate open interest.
- 3.Buy 1 ATM call nearest the current stock price.
- 4.Sell 2 OTM calls at a strike near your original purchase price.
- 5.Verify the net premium is near $0.00 — a small credit is preferable.
- 6.Enter as a single multi-leg order; if legging in, buy the long call first to avoid naked-short exposure.
Max profit
Capped at the short-call strike. In the MSFT example (shares at $330, short calls at $360), max profit ≈ $6,000 — stock gain of $3,000 + long call gain of $3,000 — roughly doubling the return to breakeven.
Max loss
Same as owning the shares — the overlay adds no downside protection. Since entry cost is $0, no additional premium is at risk.
Breakeven
Effective break-even ≈ midpoint between current price and short-call strike. MSFT example: ($330 + $360) / 2 = $345 — cutting the distance from $330 to $360 in half.
When to use
When you own underwater shares and expect a moderate rebound to roughly your cost basis within one option cycle. Best used when IV is sufficient to create a zero-cost overlay.
When to avoid
When you are very bullish and want full upside beyond your cost basis. Also avoid if the stock is likely to rally sharply past the short-call strike — gains are capped there. Do not use as a hedge; it provides zero downside protection.
Example trade
Underlying: MSFT at $330 (original cost basis $360) Expiration: 60 days Buy 1 MSFT 330 Call at $11.20 Sell 2 MSFT 360 Calls at $5.60 each Net entry: $0.00 Best case at $360: Stock +$3,000 + Long call +$3,000 + Shorts $0 = +$6,000 New effective breakeven: ~$345 (midpoint between $330 and $360) Flat at $330: $0 (still underwater on stock but no new loss) Downside at $300: −$3,000 (same as stock, overlay adds nothing)