What percentage or dollar amount is best to set a stop
when trading options? Option prices can fluctuate quite
a bit, so even if the option eventually increases in
value and becomes profitable, it can drop significantly
before doing so, which means a stop can be triggered
during this temporary drop in value. What amount/percent
works best, to avoid triggering a stop during a longer-term increase in value?
This is tough, because options fluctuate very easily up and down. A 10% drop can happen in 1 min and the next min its up 10%. I would think that the dollar amount will flucuate between option to option. You have to think of a couple of things…
1) How much time do you have before the option expires.
2) Why is the stock falling?
What I like to do is try and think of how far a stock might fall, and try to figure out what the option price would be if it fell that far, and set it around that.
Hope that helps.
10 to 20% if it falls that much it will likely fall further
References :
This is tough, because options fluctuate very easily up and down. A 10% drop can happen in 1 min and the next min its up 10%. I would think that the dollar amount will flucuate between option to option. You have to think of a couple of things…
1) How much time do you have before the option expires.
2) Why is the stock falling?
What I like to do is try and think of how far a stock might fall, and try to figure out what the option price would be if it fell that far, and set it around that.
Hope that helps.
References :
i think it depends on the percentage of your target profit, max one third of target profit.
References :
http://onlineoptionstrading.blogspot.com