Hi,
I'm not yet an experienced options trader, but I've moved beyond paper trading and am testing the water with some long option positions. When I buy, I seek ITM options with open interest, delta > 0.8, and as low a bid/ask spread as I can find. I set stops like I would in a swing trade and move the stop up as the option price appreciates. What I've noticed in a few instances is that when the price recedes such that the bid hits my stop, the trade does not execute. In these instances, I've gotten nervous and cancelled the stop to execute the sell manually. Of course, I may not always be watching in the future and would like to better understand and trust (or be adequately wary of) stop orders on options. Can anyone offer some insight?
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Stop orders on options
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fenpark15,
One point of confusion could be that stops on options behave somewhat inversely to the stops you're accustomed to with stocks. With stocks, when you are long the position and open a Sell Stop, the stop is tracked against the Bid or Last traded price to be triggered once the stop is reached.
With options, when long a contract and setting a Sell Stop, even though a sell trade is still executed off of the Bid price, the stop price is tracked against and triggered off of the Last trade or ASK price when selling. An option buy stop order is triggered off of the last trade or BID price. You can find a help guide to our trading page here with a convenient reminder that lays out this practice.
Best regards,
Rocco Sabino
TradeKing
Trading and Customer Support
One point of confusion could be that stops on options behave somewhat inversely to the stops you're accustomed to with stocks. With stocks, when you are long the position and open a Sell Stop, the stop is tracked against the Bid or Last traded price to be triggered once the stop is reached.
With options, when long a contract and setting a Sell Stop, even though a sell trade is still executed off of the Bid price, the stop price is tracked against and triggered off of the Last trade or ASK price when selling. An option buy stop order is triggered off of the last trade or BID price. You can find a help guide to our trading page here with a convenient reminder that lays out this practice.
Best regards,
Rocco Sabino
TradeKing
Trading and Customer Support
Displaying all 2 forum posts
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