stop orders do you use them

[cnms2]

Quote from jimrockford:
I think, and I hope he means, "partially protecting", rather than "protecting". Sometimes stops help protect. Sometimes, they don't. I think he's guilty of poor semantics, but he doesn't deserve to be ridiculed.

I'm trading directionally using long / vertical front month near in-the-money options. I size my trades based on the underlying price stop-loss, that I convert into my option stop-loss for a 75% implied volatility at the end of my time frame forecast. Under normal conditions I close my position without my stop-loss order being hit.

I avoid stocks with large slippage and very volatile, but when I trade them I prefer to use stop-limit orders on the assumption there is a higher probability that the gap will be filled.

Using near ITM options protects of large losses when the underlying gaps and doesn't recover, even if my stop order is filled poorly or stop-limit order is not filled. These should be rare situations.

 

[OptionScreen]

He mentioned "trade option", What about buy or selling
put or call, since you pay primium and your downside
risk in limited to the primuiem paid? right?

Why you need to use Stop limit then?

 

[cnms2]

Quote from OptionScreen:
He mentioned "trade option", What about buy or selling
put or call, since you pay premium and your downside
risk in limited to the premium paid? right?

Why you need to use Stop limit then?

Due to options' large slippage and relatively low volume, a market order could be filled at an unfavorable price especially in a fast moving market. A stop-limit order protects you from this.

If the stop-limit order to close a long position doesn't get filled because the price gapped through it, the most you'll lose is the whole premium.

 

[qazmax]

If your heart rate changes when you enter a position, then you need a stop. Otherwise just keep an eye on it...