Win % and Stop Loss on Options

[HtownTrader]

1. What % of trades do you strive to win, and what % do you actually win? And do you have a formula for trying to limit your loss to a certain percentage and then have your gains outweigh those losses?

2. Do you use stop-loss orders if you only trade options, and if you do, what % do you set it at? I am experimenting with 2 scenarios: 40% stop-loss on orders while being more selective, or being a little less selective, knowing I might lose more trades, but lowering my stop-loss to 20%. Any ideas?

 

[gaussian]

Win/loss percentage is a naive way to look at trading. You should really be looking at total return vs total risk. You can win a lot, but if your risk management is bad you could end up giving it all back in a few losses.

Stop losses are often difficult to place on complex options positions. In the event of earnings events you'll find yourself being forced to hold through the night anyway. I would be interested in hearing how people manage stop losses on complex options positions. I've been doing it manually since they rarely become emergencies very quickly. I've never had a problem getting out of a spread or something before it got too bad. I could see however single leg options going bad fast. Stop losses on those work much like stocks.

 

[KeLo]

1. What % of trades do you strive to win, and what % do you actually win? And do you have a formula for trying to limit your loss to a certain percentage and then have your gains outweigh those losses?

2. Do you use stop-loss orders if you only trade options, and if you do, what % do you set it at? I am experimenting with 2 scenarios: 40% stop-loss on orders while being more selective, or being a little less selective, knowing I might lose more trades, but lowering my stop-loss to 20%. Any ideas?

Your question shows that you have much to learn about options trading. That's OK, we were all newbies once. A good all-around book that I recommend is Options as a Strategic Investment, by Larry McMillan.

Also see: https://www.optionseducation.org/

There are many free options trading courses on YouTube. Caveat Emptor. Not all "gurus" are competent.

Good luck.

 

[expiated]

What % of trades do you strive to win, and what % do you actually win? And do you have a formula for trying to limit your loss to a certain percentage and then have your gains outweigh those losses?

I trade Forex, not stocks or options, so perhaps my experiences are not really applicable to your question, but when I was scalping currency pairs (over two years ago) I was striving for and actually attaining a daily win rate north of 90%.

Because the percentage of successful trades was so high, I was able to get away with a 3:1 risk-to-reward ratio (if you want to call that a formula for trying to limit my losses to a certain percentage and then have my gains outweigh those losses).

Over the last two years I have been re-engineering my system to resemble more of a pseudo-swing approach to trading. Major modifications were not finalized until approximately three weeks ago, and the final touches were not incorporated until maybe three days ago.

During that time, I initially just wanted to get my daily success rate up above 50%. But that was quickly changed to 60%, and then upped to 70%. Now that I've reached that goal (see below) I have my sights set on 80%. (Presently, my average losses are about 50% greater than my average gains.)

I'm not counting on returning to the 90% daily success rate I experienced as a scalper, but should that happen, it will be icing on the cake.