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Recovering
From a Stock Loss Page
2 |
| . |
| Scenario
#1: In this scenario the stock goes nowhere. You will notice that we have gained nothing,
and we are still showing a $21 loss in the stock.
Remember when we said that this strategy only works if
the stock is making a bounce and its price is expected
to go up. |
| Stock
Value At Option Expiration |
Stock
P&L |
Long
Call Value |
Short
Call Value |
Total
P&L |
| $110 |
-$21 |
-0- |
-0- |
-$20 |
|
| Scenario
#2: In this scenario the stock has
increased in value and is now trading at $120. You
will notice that we could now exit this trade and
break even. There is no need to wait for our stock to
rise the additional 10 points to $130 to exit the
trade. |
| Stock
Value At Option Expiration |
Stock
P&L |
Long
Call Value |
Short
Call Value |
Total
P&L |
| $120 |
-$10 |
$10 |
-0- |
-0- |
|
| Scenario
#3: In this final scenario you will notice
that the stock has reached the $130 level but we have
realized no additional gains by staying in the trade
and waiting for them. |
| Stock
Value At Option Expiration |
Stock
P&L |
Long
Call Value |
Short
Call Value |
Total
P&L |
| $130 |
-0- |
$20 |
$20 |
-0- |
|
| . |
|
Options
involve risk and are not suitable for everyone. Prior
to buying or selling an option, a person must receive
a copy of Characteristics
and Risks of Standardized Options. Copies of this
document may be obtained from your broker. |
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