Hi Guys,
Do we need to have a stop loss order for a Futures trade if I have a put option in place to hedge it ?
Thank you
Do we need to have a stop loss order for a Futures trade if I have a put option in place to hedge it ?
Thank you
Do we need a Stop loss order in place if we have an option
- Thread starter traderwald
- Start date
By the nature of your question, it seems you have a spread. With that being said, it is up to you if you want a stop-loss in place or not. Entirely depends on innumerable factors, your strategy, etc. Your spread would ideally have a defined-risk, and you don't need to assume all the losses in the hedge just because you have a max cap on losses.. therefore you can place a stop-loss, but that also doesn't mean that is a good decision to do by default. Goes back to your sole discretion.
Always keep in mind, in major gap-downs or gap-ups, no stop loss will prevent that, but if your max loss is capped, you'll be safe.
Always keep in mind, in major gap-downs or gap-ups, no stop loss will prevent that, but if your max loss is capped, you'll be safe.
Thank you Amahrix.
Does the put definitely protect the long position on the underlying ? I mean if the underlying goes below the put strike price, can I exercise (if I so choose) and the underlying position gets closed at the strike price of the put ?
Yes but generally you'd close both stock and option at the same time if there is still time value. Only reason to exercise early would be if there is a dividend that is somehow not priced into the option.
MattZ
Sponsor
If you are Long a Futures market and bought a Put Option below the price you got it, you may or may not need a S/L order. The strike price and your entry price have to make sense.