Using a stop loss on the underlying chart while trading options?

[sjain100]

I'm sure there is some debate about this and some professional traders may or may not be using a stop loss when looking at the underlying chart to exit an options trade. Most traders I'm guessing do multi leg spread trades to control risk (and not really use a SL), but any traders out there use a SL while looking at the underlying chart to determine their exit for the option (long call/long put directional trade only)?

Some may say that no point in a SL, just risk the entire premium if long call/put (directional trade only) or use a spread/multi leg strategy when trading options, but not sure whether risking entire premium in a directional trade is a good move vs. preserving your capital for the next options trade. If the underlying SL is hit, admit your wrong, take the loss & exit, move on to the next trade.

Any thoughts from those who use a SL or those who don't?

 

[smallfil]

I use a stop loss but, a mental stop loss as the bid and asked spread in options are wide. It is not practical to put in a hard stop like when trading stocks. This with risk management caps my losses even further. Small losses are fine. The huge losses are the ones that eat your profits and damage your trading account. I save my capital even if the trade loses. The next trade could be a good sized winner. Those leftover options premium from losses added together, most times would be enough to fund the next trade. So, save every bit of capital. Winners will come in due time and you can make it all back and then, some with one fell swoop.

 

[sjain100]

Well put "left over options premium from losses added together" definitely fund that next trade, which could be that next winner! No point imo also to treat trading options different from any other asset in terms of using a stop and exit to avoid a huge loss, which allows you to stay in the game.

 

[ktm]

I've evolved my option trading over the years to not use a SL. Too many times I was burned or it blew through the stop or moved hard and hit my stop and then came right back. I always look at what I have on and ask myself "what if we drop 400 on the S&P overnight or today" and "what if we move up 80-100 in the same time frame?" and make sure I'm good. I don't think one method is better or worse, it's just personal preference and what works for your style of trading.

 

[sjain100]

I've evolved my option trading over the years to not use a SL. Too many times I was burned or it blew through the stop or moved hard and hit my stop and then came right back. I always look at what I have on and ask myself "what if we drop 400 on the S&P overnight or today" and "what if we move up 80-100 in the same time frame?" and make sure I'm good. I don't think one method is better or worse, it's just personal preference and what works for your style of trading.

Yeah your right, its personal preference and what suits one's style and makes money at the end of the day for the trader, I agree. When you mentioned you ask yourself and are indifferent whether the sp drops heavy or moves up in the same TF, and making sure "your good"...are you referring to the importance of being well capitalized in the event the sp even drops heavy by chance?

 

[ktm]

When you mentioned you ask yourself and are indifferent whether the sp drops heavy or moves up in the same TF, and making sure "your good"...are you referring to the importance of being well capitalized in the event the sp even drops heavy by chance?

Having enough capital is certainly important, but for me it's about having positions in place (spreads, etc...) that aren't going to go nuts if we drop 400 on the S&P. I'm old enough to remember a few times when liquid options on ES/SP couldn't really be priced accurately during catastrophic down days. All of that trauma over the years has shaped me.

 

[Paulsy]

Stop loss and take profit are two essential trading orders used to control profits and losses in a forex trade. Both orders are designed to decide how much you are willing to risk or make from each trade. This may seem pretty easy at first, but knowing how to apply for each order correctly according to preset risk management rules is what differentiates successful forex traders from the crowd.

What is Stop Loss Order?
A stop-loss (SL) order is used to automatically close a trade when the price reaches your set price level. It indicates how much money you are willing to put at risk for a single trade.

This order can help in minimizing the losses if the price begins moving in the opposite direction, and in some cases locking profits as well. It is usually placed with a market or a pending order and can be a number of pips, percentages, or a particular price level.

The stop-loss level is typically set in the opposite direction of your trade. Meaning it is put below the entry-level for long trades, and above the entry-level for short ones.

A trailing stop is a type of stop-loss that secures profits as long as the market moves in the trade’s direction, and automatically closes the trade if the market moves against it. It is set at a certain distance from market price, measured as a percentage or number of pips. It follows the market price until it moves against your Positions.

How to Set Stop Loss and Take Profit in MT4
The simplest and easiest way is to enter both stop loss and take profit levels when placing a new order. Simply enter the precise price levels at which you want to take profit or stop loss.

The take-profit order will be automatically executed when the price reaches your target level, while the stop-loss will be automatically activated if the market moves against your position.

Remember that both stop loss and take profit orders will remain adjustable while your trade is active. However, setting both levels when deciding a trade is much preferable.

SL and TP orders will be shown on the chart and you can easily click and drag any of them to adjust your trade. Alternatively, you can go to the “Terminal” section at the bottom of the chart, right-click on the trade you want to modify, and choose “Modify or Delete Order”. Now you can adjust SL and TP levels by exact price or pips.

How TP and SL Protect Your Trading
Each order benefits your trading and helps you control the trading possible outcomes. The stop loss keeps you from losing too much of your capital in one trade, while the take profit helps you hold your profits in case the market decides to change its direction.

Both levels can be determined based on technical analysis of the market. So, make sure that you choose the correct levels according to market analysis and risk management plan.

 

[nooby_mcnoob]

Stop loss and take profit are two essential trading orders used to control profits and losses in a forex trade. Both orders are designed to decide how much you are willing to risk or make from each trade. This may seem pretty easy at first, but knowing how to apply for each order correctly according to preset risk management rules is what differentiates successful forex traders from the crowd.

What is Stop Loss Order?
A stop-loss (SL) order is used to automatically close a trade when the price reaches your set price level. It indicates how much money you are willing to put at risk for a single trade.

This order can help in minimizing the losses if the price begins moving in the opposite direction, and in some cases locking profits as well. It is usually placed with a market or a pending order and can be a number of pips, percentages, or a particular price level.

The stop-loss level is typically set in the opposite direction of your trade. Meaning it is put below the entry-level for long trades, and above the entry-level for short ones.

A trailing stop is a type of stop-loss that secures profits as long as the market moves in the trade’s direction, and automatically closes the trade if the market moves against it. It is set at a certain distance from market price, measured as a percentage or number of pips. It follows the market price until it moves against your Positions.

How to Set Stop Loss and Take Profit in MT4
The simplest and easiest way is to enter both stop loss and take profit levels when placing a new order. Simply enter the precise price levels at which you want to take profit or stop loss.

The take-profit order will be automatically executed when the price reaches your target level, while the stop-loss will be automatically activated if the market moves against your position.

Remember that both stop loss and take profit orders will remain adjustable while your trade is active. However, setting both levels when deciding a trade is much preferable.

SL and TP orders will be shown on the chart and you can easily click and drag any of them to adjust your trade. Alternatively, you can go to the “Terminal” section at the bottom of the chart, right-click on the trade you want to modify, and choose “Modify or Delete Order”. Now you can adjust SL and TP levels by exact price or pips.

How TP and SL Protect Your Trading
Each order benefits your trading and helps you control the trading possible outcomes. The stop loss keeps you from losing too much of your capital in one trade, while the take profit helps you hold your profits in case the market decides to change its direction.

Both levels can be determined based on technical analysis of the market. So, make sure that you choose the correct levels according to market analysis and risk management plan.

htf is this a post here.

 

[Overnight]

...

How TP and SL Protect Your Trading
Each order benefits your trading and helps you control the trading possible outcomes. The stop loss keeps you from losing too much of your capital in one trade, while the take profit helps you hold your profits in case the market decides to change its direction.

Both levels can be determined based on technical analysis of the market. So, make sure that you choose the correct levels according to market analysis and risk management plan.

You only lose on a trade if you close a losing trade. Why is that bit not included in your brilliant cut-and-paste job here, fucker?

 

[qlai]

If the underlying SL is hit, admit your wrong, take the loss & exit, move on to the next trade.

If your premise for the trade was that hitting that price level, even for a second, invalidates the trade, then sure. But, imho, the reason to use options on the long side (besides leverage) is precisely to avoid being stopped out by noise. You sized the options trade for the worst-case scenario and you had some risk-reward in mind - that is what you paid for. If that risk-reward shifts adversely for any reason, then close the trade. For example, passing of time without underlying doing what you expected it to do decreases probability of success so much that it’s no longer a trade you would take if you were not already in position. But if you got into the trade and bad news hit, you can afford to give it a few days to see if initial reaction sticks or stock recovers.