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Stop Limit for Simple weekly option trades
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Stop Limit for Simple weekly option trades

  #1 (permalink)
Knowledge Seeker
Dubai, UAE
 
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Stop Limit for Simple weekly option trades

what's a good way to estimate the stop loss for a weekly option trade (simple long call or put), given the value may fluctuate within a big range and you need to hold thru your unrealized loss until it reverses back and get to your target?

i have tried -10%, -15% and even up to -30%, you can still get stopped out with loss only to see your profit target hapenning couple hours later? any guidance i can follow?

sorry if this seems like a very basic question....

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  #3 (permalink)
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RedK View Post
what's a good way to estimate the stop loss for a weekly option trade (simple long call or put), given the value may fluctuate within a big range and you need to hold thru your unrealized loss until it reverses back and get to your target?

i have tried -10%, -15% and even up to -30%, you can still get stopped out with loss only to see your profit target hapenning couple hours later? any guidance i can follow?

sorry if this seems like a very basic question....


RedK, it sounds like you are getting caught in the IV (implied volatility) trap. Are you using a platform like TOS so you have access to option analysis tools?

It is very important to understand IV in option pricing. If you don't have access to TOS, there is a free program you can download from SamoaSky|option analysis software that will help you analyze implied volatility using their Volcone.

In the past I tried using a dollar amount and/or a percentage and it never worked consistently. That's when I learned that IV will tell you whether your option is over or under priced. It sounds like you are buying overpriced options (with high IV). If you are purchasing ATM options, you are paying too much because it has the most extrinsic value.

If you are buying (single) options....calls or puts, the way I learned it....you should always buy ITM with a delta of not more than 80 and not less than 70. There is a way to calculate the strike price + option premium to find where you will get the biggest bang for the buck. If you are selling options, you want to sell ATM or slightly OTM to take advantage of the theta decay and the highest extrinsic value.

I have a new computer and have lost a link I had to a website/video that shows you a strategy to trade weekly options. I will look for it and come back and post it if I can find it.

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  #4 (permalink)
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thanks Brevco

thanks Brevco .. the 70-80% delta is a good rule to follow..

i guess on the stop loss, the only way i have so far, is to set a stop loss for the stock (underlying) and calucalte the equivalent price for the option at that price level.. this can be based on S/R levels or signals from indies (like a reversal or crossing or something).
calculating the equivalent theo price can be done from ToS's tools.

i just thought there maybe a more direct way or a rule of thumb to be used.. i mean there should be like a quick best method that cut losses and helps formulate a quick decision.
thx, RedK

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DaveTrading

we're on the same wave length here.. thanks

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RedK View Post
thanks Brevco .. the 70-80% delta is a good rule to follow..

i guess on the stop loss, the only way i have so far, is to set a stop loss for the stock (underlying) and calucalte the equivalent price for the option at that price level.. this can be based on S/R levels or signals from indies (like a reversal or crossing or something).
calculating the equivalent theo price can be done from ToS's tools.

i just thought there maybe a more direct way or a rule of thumb to be used.. i mean there should be like a quick best method that cut losses and helps formulate a quick decision.
thx, RedK


You are absolutely correct. The stop should be based on the stock's S/R levels. Years ago I tried to do exactly what you were doing....calculate the stop based on the option....and it didn't work. lol Volatility plays a huge role in option pricing. Hard lesson learned.

As promised, I found that video on a weekly option strategy using TOS:

Weekly Option Expiration Strategy Using SPY ETF - YouTube

....and here is his blog: The Option Guru ? Covered Call and Option Spread Trading for Income

I hope you find it useful. I have not traded this strategy (I've been trading futures), but I have
a friend who has traded it and he has had success with it.

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  #7 (permalink)
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RedK View Post
we're on the same wave length here.. thanks

I wrote a post with quite exactly the same content as yours and publish it just one minut after yours. For someone reading the thread it could seem stupid to publish the same than the post before. The beauty was to think and write down same ideas at the same time in the same place…
Thanks.

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A possible solution for you, RedK

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RedK,

Using a Conditional Order in TOS is one way you can manage stop-loss on option positions. I created a YouTube video for you called Conditional Order on Options in TOS - I think it's your answer. Let me know.


Happy Trading
◄Jeff►

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  #9 (permalink)
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theoptionguru View Post
RedK,

Using a Conditional Order in TOS is one way you can manage stop-loss on option positions. I created a YouTube video for you called Conditional Order on Options in TOS - I think it's your answer. Let me know.


Happy Trading
◄Jeff►

thanks Jeff .. really appreciate it and glad to see you joining the forum ..
i also do it the other way around ... i see what price the stock would be to mean it's not going in my direction, calc the option price at that level using ToS "theo price" field, then create a limit order or an OCO with a exit gain and an exit loss.. but no harm knwoing another alternative way


nb. want to hear an amazing thing.. You're one of the main reasons i'm here today.. i saw your weekly SPY option trading video a year+ ago, and it got me hooked .. so see what you've done !!!

truly appreciate your efforts helping others discover this amazing world of trading and options..

cheers,
RedK

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RedK,

Thanks, I really appreciate the reply. It's almost scary when I find out someone actually did what I suggested. I'm happy it worked out for you - at least that's what I assume.

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