Stop Loss When Trading Options
Markets Forex

0 Like 0 Dislike 4 Replies
2 years ago

Hi everyone,

I just had another lesson in my UTP class yesterday and we went over the Risk Pyramid.  I plan on doing some options trading in the future and I wanted to know from those who currently or have traded options, how do you work the stop loss in an options scenario?

Since I don't see how to create an options stop loss based on strike price (unless I haven't figured it out yet in my trading platform), I'm thinking I need to calculate my risk based on the call/put price when I enter the market but I'm not exactly sure how to go about that.  

Any feedback or suggestions would be greatly appreciated!

Thanks!!!!



Posted 2 years ago 0 Likes   0 Dislikes

Thanks Sidekick!!  Do you currently trade options?  If so, have you had success when using the UTP indicators?   Plus, how long do you usually get the options for in terms of expiration time?



Posted 2 years ago 0 Likes   0 Dislikes

Sorry , cant help you with Options, I stick with CFD's...



Posted 2 years ago 0 Likes   0 Dislikes

Hey @Foonami, 

Have a look in here .

http://www.optiontradingpedia.com/options_stop_loss.htm




Posted 2 years ago 0 Likes   0 Dislikes

So just thinking about this more.... If I'm trading options and need to base my stop loss on the ask price of the option vs the strike price of the stock, I think I would need to adjust my stop loss to reflect a $1.00 change to trigger an exit if I entered and the market goes the wrong way.

So if I have a $10,000 account and will only risk $100 (1%) per trade, if the option entry is $3.00 long call x 100 shares in an option contract, my entry total would be $300.  If the stock price drops, the option value will drop too so if I set the stop loss trigger at $2.00, I would only lose the 1%.  Of course this is only based on 1 contract option so if I entered buying more than 1 I would need to adjust accordingly.

I'm thinking this is the way I will need to approach it if I can't set a stop loss based on the actual stock price. I don't see how I would be able to use ATR when going the options route.

My entry points would still be based on the MT4 technical indicators. 

What do you guys think?