IB Stop Loss + Profit Taker for short options with GTC

Z

Zazys

Hi,

I have a Short PUT for SYY expiring on 19-May-2017 with Strike Price $50. The premium earned is 25 cents. I use Interactive Brokers TWS.

I want to take profit if the premium falls to 10 cents and protect it with a stop-loss limit if the premium goes above 50 cents. This order should be active until the expiry date.

If I use a GTC "Close Position" with a Buy for 5 cents on my portfolio and attach a Stop-Loss to it for 25 cents, the Stop-Loss becomes a Sell and there is no way to change that to a Buy.

Is there any solution to the issue?

Thanks!
 
I guess what you are looking for is a so-called "bracket order". In this you can set the profit taker level and the stop loss level. The one which is hit first will trigger a trade, the other part of the bracket is then automatically cancelled. You need to fiddle a bit with TWS to set up this bracket order, there is an instruction somewhere. I forgot whether this is at IB's website, or as a short video on Youtube.
 
HobbyTrading is correct. You want to set a bracket order with a price target and a stop. I will suggest you do that with stock orders but never do that with Illiquid options.

The SYY is not part of the penny pilot program and has very wide markets with little public paper. If the stock has a quick move (up or down) or an option exchange has system issues where market makers go wide, your stop can get triggered and you can lose dollars from a bad price in the market at that point. Even without a market condition with wide markets, you're trying to make $0.15 with markets that are $0.10 wide.

I would be careful with these if you can't watch it. Not this stock, where I have no opinion, just wide option markets with naked short options.
 
Zazys said:
I have a Short PUT for SYY expiring on 19-May-2017 with Strike Price $50. The premium earned is 25¢... Is there any solution
More...

The solution is to stop selling 25¢ options on $50 stocks. Your longevity will increase.
 
I agree with Mr. Morse. I tried stops with my illiquid options. They normally didn't work very well with wide bid/ask. I think I ended up mostly selling at bid and buying at ask. Not a good combination.

Now I just watch them carefully and get out manually, try to get as good a price as I can.
 
Of course, the only time a stop would matter -- when the stock falls sharply on earnings -- the market will be closed. The 25¢ put will be $5 on the next open. If OP wants to contain risk he'd should consider credit spreads.
 
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