Comments on: Exiting Option Trades http://theessentialsoftrading.com/Blog/index.php/2009/01/28/exiting-option-trades/ Information and resources for those looking to learn about trading and the markets Sat, 04 Feb 2012 14:17:59 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: John http://theessentialsoftrading.com/Blog/index.php/2009/01/28/exiting-option-trades/#comment-13371 John Mon, 02 Feb 2009 15:01:45 +0000 http://www.theessentialsoftrading.com/Blog/?p=871#comment-13371 Hi MN - Not a stupid question at all. A stop order on an option is based on the option's price, not on that of the underlying instrument. That said, there are brokers which allow for conditional exits based on the security price. Hi MN – Not a stupid question at all. A stop order on an option is based on the option’s price, not on that of the underlying instrument. That said, there are brokers which allow for conditional exits based on the security price.

]]> By: MN http://theessentialsoftrading.com/Blog/index.php/2009/01/28/exiting-option-trades/#comment-13370 MN Mon, 02 Feb 2009 14:42:15 +0000 http://www.theessentialsoftrading.com/Blog/?p=871#comment-13370 Hi This may be a dumb question but I dont trade options so I was wondering How do stop-losses (if there are at all) work for options? Do they "stop" you out if the option price reaches a certain level or if the price of the underlying security reaches a certain level. Hi

This may be a dumb question but I dont trade options so I was wondering

How do stop-losses (if there are at all) work for options?
Do they “stop” you out if the option price reaches a certain level or if the price of the underlying security reaches a certain level.

]]> By: John http://theessentialsoftrading.com/Blog/index.php/2009/01/28/exiting-option-trades/#comment-13359 John Wed, 28 Jan 2009 17:35:40 +0000 http://www.theessentialsoftrading.com/Blog/?p=871#comment-13359 Thanks for that Mark. I've made the correction. Thanks for that Mark. I’ve made the correction.

]]> By: Mark Wolfinger http://theessentialsoftrading.com/Blog/index.php/2009/01/28/exiting-option-trades/#comment-13358 Mark Wolfinger Wed, 28 Jan 2009 15:57:18 +0000 http://www.theessentialsoftrading.com/Blog/?p=871#comment-13358 John, Good answer. Exercising is <i>almost always</i> the wrong thing to do when trading equity options. It far better to sell the option in the open market - but at a limit price. Entering 'market orders' is not a good idea. "It also should be noted that while in the stock market, if you are holding an option and do not exercise it the option will expire and that will be it." Not true. Any equity or index option that is in the money by one penny, or more, is automatically exercised - unless the option owner notifies the broker 'not to exercise.' Mark John,

Good answer. Exercising is almost always the wrong thing to do when trading equity options. It far better to sell the option in the open market – but at a limit price. Entering ‘market orders’ is not a good idea.

“It also should be noted that while in the stock market, if you are holding an option and do not exercise it the option will expire and that will be it.”

Not true. Any equity or index option that is in the money by one penny, or more, is automatically exercised – unless the option owner notifies the broker ‘not to exercise.’

Mark

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