If you are facing unrealized losses on a collapsed stock, you can get better chances to save your money using call spreads. Imagine your ABC stock drops from $58 to $52. At the same time, you see that the chances of the stock bouncing back up are very slim (e.g. the stock has just been downgraded, it looks like the worst times are left behind but there is no hope for the stock to come back up any time soon). The instruction below will help you to bring down the break-even point, i.e. to recover unrealized losses if the stock goes slightly up, say to $54, even if the upward move is insignificant. You will not need additional funds to do this. Say, you own 100 shares of ABC, currently traded at 52. The idea is that you keep the stock and also open the following position:

Both options that you sold are covered: one by the stock itself, another one by another "leg" of the bull spread. Note that you haven't spent any extra money yet. Note that you haven't spent any extra money yet.

The new position has two advantages. First, it is as risky as the initial position: if the price drops below 52, the losses remain the same as they were initially. Second, if the price goes up a little - up to 54 - you cut all the losses (see the table below):

We should note that although opening and maintaining the new position does not cost you a dime, you will still have to pay a small commission and to have $2000 worth of equity as a collateral on the margin account per one contract, as required by most brokers.

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