Stock Repair Strategy - Fix Losing Trades with These Two Option Setups

If you’re holding a stock that’s down and wondering how to fix it without buying more shares, a stock repair strategy with options might help. This article covers two clear setups - one simple, one advanced - that use options to reduce your break-even and potentially recover your losses.

Key Takeaways

• The stock repair strategy is used to recover unrealized losses and can be done in a simple way (just sell a call) or a more complex way (ratio spread with 1 long and 2 short calls)
• Profit is capped in both stock repair strategies, but the ratio spread offers higher upside if the stock bounces fast. Things will get worse, though, if the stock price keeps moving down.
• In general, this is a smart way to lower your break-even price without risking more capital

What is the stock repair strategy?

The stock repair strategy is a way to recover paper losses from a stock that has dropped in price. You can do it in two ways: the simple route of selling one call option, or a more complex setup that uses a ratio spread with one long call and two short calls.

Both versions aim to lower your break-even price, helping you recover without putting more money at risk. That’s what makes stock repair different from averaging down, which requires you to buy more shares and increase your exposure.

The first approach is simple. You sell a call option against your losing stock position. This is basically a covered call, though it doesn’t need to be a perfect one-for-one setup (even if you don’t own 100 shares, selling a single call still allows you to collect premium, which can chip away at your losses over time). The trade-off? Limited upside, and it takes longer if the stock doesn’t move much.

The advanced stock repair strategy is more aggressive. Here’s how it works:

• Buy one at-the-money call
• Sell two out-of-the-money calls, ideally at a strike near your original entry price
• Use the same expiration for all options

This structure creates a call ratio spread layered over your stock. If the stock bounces back to the level of the short calls, you can break even on the entire position.

Therefore, if we had to sum this up, here is how the stock repair strategy works:

• Sell 1 call - safer if the stock trades sideways or falls slowly
• Call ratio spread - better if you expect a sharp bounce, but has more downside risk.

A simple stock repair strategy: Selling one call

Selling a single call is the most basic form of the stock repair strategy. It doesn’t require a big commitment or a complex setup, but it can still help reduce losses on a losing stock position by lowering your break-even price, one premium at a time.

Here’s how it works: when you sell a call, you collect premium upfront. That cash acts as a buffer against your unrealized loss. If the stock stays below the strike by expiration, you keep the premium and can repeat the process with a new call. This is the core idea behind using a stock repair method based on covered call logic.

Since you're the option seller, time decay (theta) works in your favor. Even if the stock doesn’t move much, you’re still making slow progress toward repairing the trade. The flip side? You’re giving up potential gains above the strike, so if the stock jumps, your profit is capped.

Let’s say you own 100 shares of REGN at $650. The stock is now trading around $570, leaving you with a paper loss. Instead of averaging down (which would require buying more shares) you could sell a $620 call expiring in 4 months. That call is currently worth $36.10 per share, or $3,610 total. Here is what your P&L will look like, as found on our options screener:

What does that do?

• Your new break-even is $613.90, down from $650
• You collect income upfront
• Time decay helps you if REGN stays flat or rises slowly
• If REGN stays under $620, you keep the premium

If we had to summarize this trade, we’d say:

• Pro: Low effort, low risk, steady repair
• Con: Capped upside, slow recovery if REGN stays flat
• Risk: If the stock drops further, you’re still losing (just a bit less)

This stock repair strategy works best when you believe the stock is undervalued and likely to recover gradually. It’s not a fix-all, but it’s better than sitting on a loss doing nothing.

An advanced stock repair strategy: Call ratio spread

This version of the stock repair strategy gives you more potential upside if the stock rebounds, but it also involves a bit more risk. You’re not just collecting a single premium anymore - you’re building a structure that can accelerate recovery if the stock moves in your favor.

The setup involves three parts:

• Buy 1 at-the-money call
• Sell 2 out-of-the-money calls
• Use the same expiration date for all options

This is a classic call ratio spread, and when combined with your existing long stock position, it becomes a full stock repair setup. The long call gives you extra upside exposure if the stock rallies, while the two short calls help pay for the trade. In many cases, you can enter this position for no cost, or even a small credit.

If the stock moves up into the zone between your long call and the short calls, you benefit from both the intrinsic value of the long call and the premium collected from the short ones. The catch? If the stock drops, your long call loses value. And if it spikes well above the short strike, you risk assignment or losses from the second short call.

Suppose, again, you hold 100 shares of REGN bought at $650 (remember: now it trades around $570). You decide to:

• Buy a $580 call
• Sell two $650 calls
• All options expire in 4 months

Your P&L will look like this:

Let’s say this setup costs you almost nothing upfront (which is often true, you are buying a call at $52 and selling two at $26.15 times 2). Based on pricing, your new break-even drops to $614.85. You haven’t added any capital, but you’ve built a structure with more upside than a simple covered call.

If REGN moves back toward $650, you could recover a large part of your losses, possibly even break even. If it climbs much past $650, your gains flatten because of the two short calls. If it drops below $580, all options expire worthless - and you're left with the same losing stock position.

Pros and cons at a glance:

• Pros: Faster recovery if the stock rebounds moderately. No extra capital required
• Cons: More downside risk if the stock drops further. Profit is capped above the short strike

This version of the stock repair strategy is best when you're confident the stock will bounce, but not explode upward. It’s a calculated tradeoff - more potential reward than a covered call, but also more exposure if you're wrong.

Side-by-side comparison of the two stock repair strategies

Both stock repair strategies aim to reduce your break-even point on a losing trade. But they do it in different ways, with different risk profiles. Choosing the right one depends on your outlook, risk tolerance, and how fast you want to recover.

The simple call sell is more conservative. You collect a premium by selling one call and slowly reduce your break-even price. It works best when you think the stock will recover gradually or stay flat. If you're wrong and the stock drops more, you still lose - but a little less. Upside is limited, but the risk is manageable.

The call ratio spread, on the other hand, is more aggressive. You buy one call and sell two higher-strike calls. If the stock moves up into the “sweet spot” between the two strikes, this stock repair strategy can recover more losses than the basic version. But it comes with higher risk: if the stock drops further, you lose more. If it rallies too hard, the second short call caps your profits and may expose you to assignment risk.

Here’s how the two methods compare:

When to use each:

• Use the covered call version if you prefer a steady, low-maintenance way to chip away at a loss without adding risk. Ideal when you don’t expect a fast recovery.
• Go for the ratio spread when you’re more bullish and want to recover faster - but only if you’re OK taking on more risk if the stock moves sharply in either direction.