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.
July 26th, 2010 at 7:16 pm
10 to 20% if it falls that much it will likely fall further
References :
July 26th, 2010 at 7:51 pm
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 :
July 26th, 2010 at 8:27 pm
i think it depends on the percentage of your target profit, max one third of target profit.
References :
http://onlineoptionstrading.blogspot.com