A question of "stock repair"

[riskfreetrading]

Quote from spindr0:

As far as a short put goes, I'm not sure that we're on the same page here. The CCS consists of a covered call and a bullish call spread. The breakeven point is generally somewhere b/t the two strikes. If the stock is below the short strike but above the BE point, the position just doesn't make its full potential.

One could argue that the CC is equivalent to a NP and go off on that tangent but the big picture is that if the CCS is done for at least no debit, the entire position acts like stock up to the long strike and then makes $2 for every $1 that the stock makes b/t the two strikes, with the maximum repair profit attained at or above the short strike at expiration.

Sorry I misunderstood you. I thought that you were recommending a covered call only! and that you meanrt by CCS a covered call.

I think I now understand what you mean (but maybe not). Now I understand that the covered call (which is a short put) and the long side of the bull call spread are almost like a stock (short put + long call, but at different strikes). The short call of the bull spread reduces the cost of the position.

Interesting! Thanks for the clarification. Pls. let me know if I got it wrong.

 

[riskfreetrading]

Quote from spindr0:

then makes $2 for every $1 that the stock makes b/t the two strikes, with the maximum repair profit attained at or above the short strike at expiration.

Spin:

After my previous post I re-read what you wrote and maybe I am not understanding the position your proposed, or I am miscalculating what's in my mind.

In my mind the short call in the covered call (call1) is below current stock price. The long call (call2) of the bull spread is above current stock price. Therefore when stock is above (deep enough above) strike of call2 and below strike of short call3, the position should have a delta around 1 close to expiration. [Stock (+1)-Delta(call1)+Delta(call2)-Delta(call3)]. Since 1>= Delta(call1)>Delta(Call2)>Delta(call3), then why would the position move $2 for each $1 when stock moves up between strikes of call2 and call3?

Maybe the placement of the strikes of call1 and call2 are not where you have them in your strategy. Thanks again for your clarifications.