Great info. I have a question on the stop loss concerning LEAPS and goes for all options, i guess.

In this type of Economy/Market if I would have put my stop Loss at 10%-20% range the majority of my selections would have been kiccked by volatility. Leaving me out. I realize that stop loss should be set to everyones own comfort level.

Should we be setting stop loss a little higher with current market conditions volatitlity, so that our positions won't be kicked out as quick: just because of a short term bear sentiment.

I am not saying a large increase in stop loss, maybe an increase of 2% to 7% of our normal tolerance level in a eratic market. I am just curious if our strategy or our own plan can be tweaked a little to compensate for the volatility. and would raising our stop loss on a leap be really worth the consideration over the longer term leaps.

Hello WallStreetKing,

That is the issue with stop orders; they are so permanent after the trade hits. It can be really annoying when the stop hits and the market instantly bounces back. In regards to your question,  the bottom line is the amount of risk you are looking to take has to be based on "your" account and "your" risk tolerance level. If you are comfortable taking a little more risk per trade then it is okay, but only you can truly answer that question. With that said, if you plan to take more risk and "lowering" your stop prices, I would also think about increasing your upside target prices. Sense the potential loss on the downside is obviously greater the overall account strategy needs greater potential on the upside to make up for it. Since the market overall is more volatile, one would hope it would be that way on the downside and the upside of the market, which it has proven to be recently.

Regards,

Brian (Og)

ps. I know a stop loss is mentioned in the post, but a great feature of the TradeKing site is the ability to place a "stop" type order using the advanced order entry feature called a "Contingent" order. I plan to post a blog soon that explains the differences.

Wow, two things i wasn't thinking about first increasing upside targets in unison with stop loss and the contingent order.That is a winning combination for a strategy. Thanks, your the man!

I will put this in my tool box under rough Economy. thanks.

I understand that setting stop loss is at my own tolerance on risk level and what i do is my own reward or loss and hold no one accountable but myself for my genious or stupidity. Peace

I hope everything works out for you. I have started the post that will outline the tradeoffs of the contingent order verses a stop order. Your comments gave me the idea - thanks for that!

Regards,
Brian (Og)

I totally agree and if you have read some of my book "The Options Playbook", it outlines buying long term, deep in the money options in the rookie section. I wish people would not get drawn into the leverage of the options. If you can't make money buying in the money leaps you are going to have a really tough time when choosing to buy near-term out the money options. FYI... The online version of "The Options Playbook" is available to TK clients under the learning tab when you are logged in.

Regards,
Brian

Thanks for your blogs.  I've wanted to try LEAPS for awhile but didn't really get it until I read your blogs.  I have a question about the stop loss on LEAPS.  If I want to place a stop loss at 10%, is the 10% on the cost of the LEAPS or the cost of the underlying stock?

I am glad to hear that you are reading and applying. The stop loss is on the value of the LEAPS option. If we use your 10% stop loss number and the option you are long was trading for $12 dollars the stop loss point would be $10.80. I am going to be posting a blog soon on the topic of stop loss orders.

Regards,
Brian (Og)