To paraphrase: options are more volatile than the underlying stock, and one can set a stop based on the anticipated movement of either of them. Got it. Now how ’bout some guidance on how to use the darned things? Like, I know that there are no “black letter” rules, but what are some of the factors which one should use to decide whether to use which kind of stop (and where/how does one get/use the information which leads toward which kind of stop in a given situation? A corollary set of questions would be toward the management of the stops. Sometimes we adjust them and sometimes we honor them (e.g., BAC Oct. $9 calls — why did that trade get shut down asap after the initial stop had been hit rather than giving the stock a chance to rebound, when there is almost two (2) weeks to expiry (or in this case, earnings), and the position presented yesterday in the Strategy Session was that the Financials appeared to be strengthening? I guess what I am saying is that it would be very helpful to be given enough information about the reasoning behind the placement and management of the stops to be able to learn how to go about making those decisions.
And the problem with addressing such issues in the Forum is that these decisions are, by their nature, very subjective, and while the participants are very well-meaning, their voices on subjective matters tend to be cacophonous and bear confusing fruit. Years ago, when my Dad was teaching me how to pick out a ripe watermelon, he told me what to look for and then demonstrated to me how to recognize those things. That was much more helpful than if he had told me that those folks standing over there by the melons were all experts, and that I should go over and asked for help — that would have been fine if the problem had been to refine my knowledge, but that refining process can only take place after there is some knowledge in place, and it is best to gain that basic knowledge from someone whose opinions and methods you can trust.
You can do it on Etrade. You set a conditional trade stop, ie, when stock X reaches Y price, then sell Z option. What I haven’t figured out on Etrade is to set a stop to close out a spread.
To paraphrase: options are more volatile than the underlying stock, and one can set a stop based on the anticipated movement of either of them. Got it. Now how ’bout some guidance on how to use the darned things? Like, I know that there are no “black letter” rules, but what are some of the factors which one should use to decide whether to use which kind of stop (and where/how does one get/use the information which leads toward which kind of stop in a given situation? A corollary set of questions would be toward the management of the stops. Sometimes we adjust them and sometimes we honor them (e.g., BAC Oct. $9 calls — why did that trade get shut down asap after the initial stop had been hit rather than giving the stock a chance to rebound, when there is almost two (2) weeks to expiry (or in this case, earnings), and the position presented yesterday in the Strategy Session was that the Financials appeared to be strengthening? I guess what I am saying is that it would be very helpful to be given enough information about the reasoning behind the placement and management of the stops to be able to learn how to go about making those decisions.
And the problem with addressing such issues in the Forum is that these decisions are, by their nature, very subjective, and while the participants are very well-meaning, their voices on subjective matters tend to be cacophonous and bear confusing fruit. Years ago, when my Dad was teaching me how to pick out a ripe watermelon, he told me what to look for and then demonstrated to me how to recognize those things. That was much more helpful than if he had told me that those folks standing over there by the melons were all experts, and that I should go over and asked for help — that would have been fine if the problem had been to refine my knowledge, but that refining process can only take place after there is some knowledge in place, and it is best to gain that basic knowledge from someone whose opinions and methods you can trust.
Dice
So you’re suggesting using the stock price for the stop ( on a call ) and not the option price?
I use etrade. I don’t think it has ‘stock based stop’ for options. What other broker has it?
You can do it on Etrade. You set a conditional trade stop, ie, when stock X reaches Y price, then sell Z option. What I haven’t figured out on Etrade is to set a stop to close out a spread.