WOD ,
IMO, putting stoploss on option is tricky. I use 2 approach for this.
One is money mgmt based, ie. based on amt that is paid, if some % of that amt is lost then get out. or if some % of that money is achieved then make postion to breakeven. Generally I enter with more then 1 contract, and sell them in steps to bring position to breakeven or to book partial profit.
SEcond is based on trend and chart levels. If trend changes, then irrespective of premium value, just take the action.
my views for sure...
IMO, putting stoploss on option is tricky. I use 2 approach for this.
One is money mgmt based, ie. based on amt that is paid, if some % of that amt is lost then get out. or if some % of that money is achieved then make postion to breakeven. Generally I enter with more then 1 contract, and sell them in steps to bring position to breakeven or to book partial profit.
SEcond is based on trend and chart levels. If trend changes, then irrespective of premium value, just take the action.
my views for sure...
I can add following 2 to it.
1) for long option positions, implement time based stop..i.e. if your position is sensitive to time decay then get out of them when time decay really starts hurting a lot
2) if you want to have swing position using naked long call option, then near the end of the day, covert it to Spread by selling another position.. That way, u are safe gaurded against the time decay and also against the opening gap. With spread, you can basically create at market neutral position to protect yourself.
Next day, when market comes to senses after opening hr trading is over, then u can take appropriate decision and close on leg of the position. (you might end up paying extra brokerage and minor loss but thats is the price of your sound sleep in the night and one extra drink in the pub).
Happy Trading