Where do I set my stop loss order when buying options? // Options stop loss, Options stop loss explained, Options trading strategies, Options basics, stop loss order explained, stop loss stocks, stop limit orders, stop loss options, options trading 101, options trading for beginners david moadel
welcome to looking at the markets with
David Modell today's topic is where do i
set my stop loss when buying options so
let's talk about that the time to decide
where to set your stop loss is before or
during the purchase of a collar put not
after here are three ways to decide
where to set your stop loss when buying
an option
one way is to decide beforehand exactly
how much money you're willing to lose on
the trade this can be a dollar amount
for example I'm investing $300 and i'm
willing to lose one hundred dollars on
this trade or it can be a percentage
amount for example i'm investing $300
and i'm willing to lose one third of my
investment on this trade then set your
stop loss order with your broker based
on this amount just as importantly make
an emotional commitment that you'll be
okay with losing that amount of money on
the trade
another way is to decide beforehand
exactly how much time will pass before
you'll exit the trade when you buy a
call or a put theta or time decay starts
gradually however as time passes and it
gets close to the expiration date theta
more quickly deteriorates the price of
your caller put especially if the trade
didn't go in the direction you wanted it
to go so you might decide beforehand
that if the trade doesn't go in the
direction you want it to go you'll exit
the trade after a certain amount of time
passes for example i bought a call
option expiring in three months if the
underlying asset goes down or sideways
for the next two months I'll exit the
trade because I don't want to be exposed
to the massive theta decay during that
final month
yet another way is to simply reduce your
position size if you make a very small
trade small enough that you wouldn't get
emotional about losing that amount of
money then you won't need to set a stop
loss with your broker basically your
stop loss would be losing a hundred
percent of the money you invested in
that trade that might sound drastic but
it's not such a big deal if you're
putting a very small amount of money
into the trade think about it losing one
hundred percent of a 100 dollar trade
isn't any worse than losing one third of
a $300 trade thus using a very small
position size is nice because it has a
built-in stop loss
so what's the takeaway knowing ahead of
time what your potential loss can be is
a great way to preserve your capital and
give yourself peace of mind try any or
all of these methods to keep your bank
account and your sanity intact so if you
need help with this or if you just want
to put together a trading plan maybe you
have questions about finance investing
stocks options or whatever feel free to
contact me at any time my email address
is David Modell and that's moa de l @
gmail.com also please give this video a
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much for listening and I'll talk to you
soon
you